Plunging oil prices to suppress inflation

Published on 24 Mar 2020.

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RAM Ratings’ overall outlook on domestic inflation for 2020 has become significantly more dovish amid the plunge in global oil prices. While the inflation rate is envisaged to remain largely unchanged at 1.5% in February, we anticipate it to shift lower through the rest of 2020, coming in at an average of 0.7% for full year as opposed to our earlier projection of 1.7%.

Given the failure of OPEC+ to reach an agreement over new output cuts and compounded by feeble demand due to COVID-19, the price of Brent crude nosedived from USD45.3/barrel on 6 March to USD27.0 on 20 March. The OPEC+ agreement will expire on 31 March 2020. Thereafter, unbridled price- and output-setting actions by oil producers will aggravate oversupply and cause substantial inventory build-up. As it is, OEPC’s surplus daily production capacity stands at approximately two million barrels. 

Notably, lower global crude oil prices will translate into cheaper retail fuel under Malaysia’s current floating fuel price regime (with price ceilings). This will in turn ease overall domestic inflation in 2020.

 

Analytical contact
Woon Khai Jhek, CFA
(603) 3385 2512
khaijhek@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

About RAM Rating Services Berhad (RAM Ratings)

Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Registration of Credit Rating Agencies, 2011. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 

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