RAM revises Malaysia’s 2022 inflation and OPR forecasts

Published on 13 Jul 2022.

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RAM Ratings has revised its full-year inflation forecast for 2022 to 3.0% from 2.5% earlier (2021: 2.5%). The revision reflects recent changes in subsidies and price ceiling for key price-controlled food items as well as stronger than expected cost passthrough to consumers so far this year.

The removal of subsidies for bottled cooking oil, as well as a higher price ceiling for food items like chicken and eggs took effect on 1st July. We estimate these measures to lift headline inflation in 2H 2022 by approximately 0.3 percentage points. Food inflation already climbed to 5.2% in May 2022, compared to 3.2% in December 2021. Given the prolonged price pressures faced by businesses, more prevalent cost pass-through to consumers will also be inevitable in 2H 2022. The low base due to the PEMULIH electricity tariff discount in 3Q 2021 also pushes the overall inflation rate higher this year.

While the government is currently considering alternative schemes for petrol subsidies, the current subsidies in place for RON95 petrol and diesel as well as electricity and water tariff would help to temper further inflationary pressures. These items collectively constitute close to 13% of the consumer price index (CPI) basket.

  Figure 1: Food prices climbing in 1H 2022       

   Figure 2: Inflationary pressure in 2022 mainly
driven by food prices

Sources: RAM, Department of Statistics Malaysia
LHS chart: FNAB = Food and Non-Alcoholic Beverages; FHEM = Furnishing, Household Equipment and Maintenance


Bank Negara raised the Overnight Policy Rate (OPR) by a total of 50 bps to 2.25%, year to date. The interest rate hikes came on the back of firmer economic recovery and stronger demand momentum. Our updated projection is for the OPR to end the year at 2.50%. Barring an unexpected economic slowdown, we expect the tightening cycle to continue in 2023, at a measured pace and quantum.

Analytical contact
Woon Khai Jhek, CFA
(603) 3385 2512

Media contact
Sakinah Ariffin
(603) 3385 2505

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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