Malaysia Hotline: +603- 2141 8908
Malaysia’s
inflation rate in January surged to the fastest level in nearly two years, but
this is not expected to lead to any increase of the country’s benchmark
interest rate. The consumer price index in January rose 3.5% from a year
earlier, the largest annual increase since March 2014. In December, the annual
rate was 2.7%. A Reuters poll had forecast a January level of 3.7%.
Fuel
prices fell in January but a low base from a year earlier plus increased food
and cigarette prices contributed to a higher inflation rate last month,
economists said. In November, the government raised excise taxes on tobacco
products by 40%. Inflation climbed following the introduction of a 6% Goods and
Services Tax in April 2015, but had been below 3% since September.
The
weakening of the ringgit in 2105, the worst-performing currency in the region
last year, has also boosted prices of imports. The central bank has an inflation
target this year of 2.5-3.5%. It said in January it expected inflation to peak
in the first quarter before moderating, as low energy and commodity prices
persist. Malaysia’s central bank has kept its overnight policy rate at 3.25%
since July 2014.
The rise
of headline inflation to above 3% isn’t seen as worrying Bank Negara Malaysia,
whose long-time governor Tan Sri Dr Zeti Akhtar Aziz will complete her term in
late April. “We don’t foresee any changes to overnight policy rates since
growth expectations have already been tuned down, and inflation is not really a
concern,” said Jeff Ng, an economist at Standard Chartered in Singapore.
Weiwen
Ng of ANZ said that for Malaysia, inflation pressures “are of secondary concern
notwithstanding the uptick today. The balance of risks in 2016 is skewed
towards growth disappointment and fiscal slippage”.
Poor
global oil prices have hurt Malaysia, which exports liquefied natural gas. In
January, the government revised its annual budget, with a total of RM9 billion in
planned spending cuts. It also trimmed the 2016 economic growth target to
4.0-4.5%, from 4.0-5.0% earlier. The central bank’s next policy meeting is on
March 9.
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