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AmBank maintains headline inflation forecast for 2022, expects further OPR hikes

26/05/2022 03:02 PM

KUALA LUMPUR, May 26 (Bernama) -- AmBank Research is maintaining its prediction for headline inflation at between 2.8 per cent and 3.0 per cent for 2022, while from a monetary policy viewpoint, it expects another round of overnight policy rate (OPR) hikes to occur this year.

In a note today, the research house said the increase in the OPR would translate into 2.25 per cent to 2.50 per cent OPR by the end of this year.

“The unexpected (25-basis point) interest rate hike by Bank Negara Malaysia (BNM) (on May 11) should help cool the demand-pull side of inflation due to higher borrowing costs. Core inflation, a proxy for demand-pull indicator, has already reached a multi-year high,” it added.

Meanwhile, AmBank Research said that cost-push factors such as firm global commodity prices, supply chain bottlenecks and rising transportation costs have continued to be the main narrative globally.

“But thanks to the fuel price ceiling and certain food items subsidies implemented by the government, we are seeing a slower inflation growth rate here in Malaysia compared to other countries,” it said.

AmBank Research said the government’s decision to not impose the approval permit on food importation to prevent food shortage may put extra constraints on the inflation rate growth.

“This would cut the ‘middle-man’ cost and abolish any monopolistic dynamic in the food industry. Also, the ban on chicken export could stabilise the domestic supply and price level although it only works in a short-term period,” it added.

However, it said the concern is on whether the government will be willing to continue paying subsidies as global food and oil prices get increasingly higher.

“The recent decision by the government to shift to targeted oil subsidy rather than blanket subsidy is seen as a signal that the costs are too much for it to bear. Coupled with the weakening ringgit, importation costs will rise further,” the research house added.



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