As expected, the headline inflation moved back into the positive region in March after staying in the deflationary zone for the past two consecutive months. It rose by 0.2% y/y in March from -0.4% y/y in February, but missed both the market expectations (+0.3%) and ours at +0.4%. Nonetheless, the 1Q2019 average inflation read at -0.3% y/y. Core inflation edged higher, coming in at 0.5% y/y from 0.3% y/y in February. This brought the 1Q2019 average to 0.3%.

With subdued inflationary pressure as well as key macro data suggesting evidences of the economy moderating, there is ample room for Bank Negara Malaysia (BNM) to potentially institute a rate cut. For now, we are looking at a possible rate cut likely to take place in July by 25bps from the current 3.25% OPR. We are playing down the possibility of a rate cut in the May MPC meeting given the current domestic noises i.e. the possibility of an exclusion from the FTSE Russell and risk of Moody’s downgrading, thus weakening the ringgit.

• As expected, the headline inflation moved back into the positive region in March after staying in the deflationary zone for the past two consecutive months. It rose by 0.2% y/y in March from -0.4% y/y in February, but missed both the market expectations (+0.3%) and ours at +0.4%. Nonetheless, the 1Q2019 average inflation read at -0.3% y/y. Core inflation edged higher, coming in at 0.5% y/y from 0.3% y/y in February. This brought the 1Q2019 average to 0.3%.

• Food prices in March rose slightly by 1.1% y/y from 1.0% y/y in February. Besides, there was a smaller decline in the cost of transport, down 3.0% y/y from -3.2% y/y in February. Rising global crude oil prices saw our petrol pump prices pick up. RON 95 averaged at RM2.08/ltr (RM2.20/ltr; February), RON 97 averaged RM2.51/ltr (RM2.47/ltr; February) and diesel averaged RM2.18/ltr (RM2.17/ltr February).

• Going forward, headline inflation is expected to pick up gradually partly due to a low base and firmer global crude oil prices. However, underlying inflation could stay fairly muted in the near term underpinned by softening consumer as well as business sentiments. So, our full-year inflation is pegged at 1.0%.

• With subdued inflationary pressure as well as key macro data suggesting evidences of the economy moderating, there is ample room for Bank Negara Malaysia (BNM) to potentially institute a rate cut. For now, we are looking at a possible rate cut likely to take place in July by 25bps from the current 3.25% OPR. We are playing down the possibility of a rate cut in the May MPC meeting given the current domestic noises i.e. the possibility of an exclusion from the FTSE Russell and risk of Moody’s downgrading, thus weakening ringgit.

Source: AmInvest Research - 25 Apr 2019