KUALA LUMPUR: Bank Negara Malaysia is expected to retain the overnight policy rate (OPR) at 3.25% given the need to maintain the balance between capital outflow pressures and growth support, says RAM Ratings.
The research house said although headline inflation is expected to accelerate this year, the pace of increase will not be unusual given the downside risks to growth from ongoing fiscal consolidation, volatile capital markets, US-China trade tensions and Brexit uncertainties.
It added that inflation is estimated to be lower at -0.5% in January (Dec 2018: +0.2%) amid deflationary pressure from the transport fuel component.
“Looking ahead, headline inflation is projected to accelerate to 2% this year, mainly driven by our expectation of continued spillover effects from the reintroduction of the sales and services tax and low-base effects during the three-month window without the goods and services tax (June-August 2018).
“The impact is envisaged to be particularly pronounced for the food component, and will be the key driver of overall inflation in 2019,” RAM said in a statement today.