Published on 19 Mar 2019.
RAM Ratings expects deflation to continue at 0.2% in February, although less steep than January’s 0.7%. The more moderate pace is underpinned by the food price component, which is envisaged to rise on the back of low-base effects. Price controls had been implemented during the lunar new year festive season in mid-February 2018, thereby taming inflation for food items. Given that the same festivities fell in early February this year, the timing mismatch may well have a notable base effect on this year’s inflation.
We have also revised this year’s inflation projection to 1.6%, from the initial 2.0%. “The lower headline inflation forecast for 2019 is driven by the recent reduction in the fuel price ceiling and also our revised expectations on the cost pass-through and spillover effects from the re-introduction of the Sales and Service Tax (SST) in September last year. Our analysis shows that these effects have been minimal thus far,” explains RAM’s head of research, Kristina Fong.
Inflationary pressure should trend upwards in the second half of the year, in contrast to the more muted effects in 1H 2019. This trend would be mainly driven by the upward pressure from the proposed switch to targeted fuel subsidies - from the current blanket subsidy system - and low-base effects during the three-month zero-GST (Goods and Services Tax) period (June-August 2018).
RAM’s base-case scenario of an unchanged OPR of 3.25% this year had originally been premised on the significant downside risks to growth while balancing portfolio outflow pressures. With the US Federal Reserve’s more patient approach to monetary tightening now, the market has priced in at most two rate hikes this year, against the three communicated earlier. As such, Bank Negara Malaysia is expected to focus on the downside risks to growth, loosening domestic monetary policy if the risks to growth momentum become more pronounced. RAM will be closely monitoring economic developments and will revise our OPR projection if necessary.
Woon Khai Jhek, CFA
(603) 7628 1093
(603) 7628 1162
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad