Friday, 25 May 2018

(The Star) Inflationary pressure to remain subdued

PETALING JAYA: Inflationary pressure is expected to remain subdued in the near term, which will allow Bank Negara to maintain the overnight policy rate (OPR) at the current level this year.

AmBank Group chief economist Anthony Dass said he believed the potential inflationary pressure from the cost side would remain subdued due to the absence of the goods and services tax (GST), fuel subsidy and firmer ringgit.

“This should allow the central bank to maintain the OPR at current levels throughout 2018, which is our base case.

“However, liquidity remains healthy, suggesting that the demand pull inflation remains. Thus we reiterate our 45% chance of a rate hike in September,” he said in a report.

According to the bank, the prospects of economic growth remained strong, driven by the strength in both domestic and external demand.

Many economists and analysts expect the central bank to retain the benchmark OPR at the current level of 3.25% for this year.

“With the GST to be zero-rated in June and the possibility of a 10% sales and service tax to be reintroduced in one to two months, we expect a downwards bias on inflation.

“Furthermore, the current retail pump prices with RON95 and RON 97 at RM2.20 and RM2.47 per litre, respectively, and diesel at RM2.18 per litre are expected to remain.

“Besides, the ringgit, which appreciated against the US dollar by 11.8% year-on-year (y-o-y) in April, will remain firm, with the downside on the currency at 2%-4%. This will keep inflationary pressure at bay,” Dass noted.

April headline inflation of 1.4% y-o-y (1.3% y-o-y in March) came in slightly lower than AmBank Group’s as well as market’s expectations of 1.5% and 1.6% respectively.