Malaysia - Malaysian inflation under control

Malaysia's inflation rate is expected to decrease gradually, with the full-year figure pegged at 3.2 percent.

To boost domestic demand, Bank Negara's overnight policy rate (OPR) was expected to be maintained over the next few months, research houses said.

AmResearch, in its report, said that inflation had peaked at 3.5% year-on-year in June and was expected to continue to fall.

“We have now fixed the full-year inflation target at 3.2%, still well within the comfort zone of 2.5 percent to 3.5 percent,” it said.

The Statistics Department has said the consumer price index (CPI) had accelerated by 3.3% year-on-year in August.

It said the CPI for the first eight months increased by 3.1 percent to 102.8 compared with 99.7 a year earlier.

With inflation coming off its peak and the urgent need to assist the recovery process, AmResearch reckoned that Malaysia's OPR had already peaked. “We expect the central bank to be accommodative, with the OPR remaining unchanged at its current level of 3% for the next three to six months,” it said.

CIMB Research said inflation was levelling off gradually but some of the drivers of inflation were still at work.

“Food prices are not nearing a cyclical peak due to global supply disruptions arising from bad weather and natural disasters. A small adjustment in the administered prices remains a wild card when the economic conditions improve,” CIMB Research said.

CIMB Research kept the inflation estimate at 3.2 percent for this year and 2.7 percent for 2012, saying growth concerns outweighed inflation for now, and that an interest rate hike might be off the agenda until a firmer economic recovery emerges in the second half.

“We think Bank Negara will tolerate a brief period of small negative real interest rates to support domestic demand. As such, we expect Bank Negara to start raising the interest rate, probably to 3.5 percent, in the second half 2012,” it said.

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