HLIB Expects Malaysia's Inflation To Remain Contained In 2h 2026

KUALA LUMPUR, Aug 18 (Bernama) -- Hong Leong Investment Bank Bhd (HLIB) expects Malaysia’s inflation to remain contained through the second half (2H) of 2026, with continued BUDI95 and BUDI Diesel subsidy support cushioning inflationary pressure from elevated global commodity prices.

Nevertheless, it said energy price volatility remains a key upside risk to inflation amid the United States (US)-Iran stalemate in West Asia.

“Following moderate inflationary pressure, we maintain our expectation for Bank Negara Malaysia (BNM) to retain the overnight policy rate (OPR) at 2.75 per cent,” it said in a note today.

The investment bank noted that, as of July 2026, the seven-month consumer price index (CPI) averaged 1.8 per cent year-on-year (y-o-y), remaining below its full-year forecast of 2.0 per cent y-o-y.

Meanwhile, Public Investment Bank Bhd (PIVB) said in a separate note that it maintained its 2026 CPI forecast at 2.1 per cent y-o-y and its OPR call at 2.75 per cent through end-2026, although the inflation path is becoming increasingly back-loaded.

It said that with headline inflation averaging 1.8 per cent y-o-y January to July, the bank’s full-year forecast would require inflation to average roughly 2.5 per cent y-o-y over August to December, raising the hurdle for its 2.1 per cent call if the expected firming in consumer prices is pushed further out.

“Base effects should also become less supportive over the remainder of the year, alongside renewed external cost pressure.

“Brent is trading above our US$70 per barrel to US$85 per barrel for 2H 2026 range as the US-Iran talks remain stalled and shipping through the Strait of Hormuz remains sharply constrained,” it said.

It added BUDI95 continues to contain the first-round household fuel impact by keeping subsidised RON95 at RM1.99 per litre, although this keeps the fiscal burden elevated and does not fully shield downstream costs.

It noted the main oil-related inflation risk now lies in second-round pass-through.

PIVB said the producer price index rose 9.2 per cent y-o-y in June, driven heavily by energy but accompanied by a 7.4 per cent increase in intermediate materials, supplies and components.

“The higher automatic fuel adjustment charges, higher freight and logistics costs and a strengthening El Nino add further upside risk to food, utilities and distribution costs into the fourth quarter (4Q) of 2026,” it said.

For now, the investment bank said price pressures have yet to broaden materially, with BNM’s inflation pervasiveness measure easing from 50.8 per cent in April to 40.3 per cent in June despite higher upstream producer prices.

“Despite firm domestic activity and 6.0 per cent y-o-y gross domestic product growth in 2Q 2026, we expect BNM to remain on hold at 2.75 per cent (OPR), including at the September Monetary Policy Committee meeting, unless second-round effects become more persistent across core services, wages and inflation expectations,” it said.

-- BERNAMA