Malaysia

Special relief measures for SMEs and rakyat

Three major announcements were made yesterday. The August inflation remained in the deflation region for the sixth consecutive month, falling by 1.4%y/y while on m/m basis, it grew by 0.2%. The poor showing was due to weak retail pump prices and electricity discount. But core inflation rose 0.2% m/m, suggesting a pickup in consumer confidence and spending following the easing of the MCO.

Meanwhile, the Leading Index grew for the third consecutive month in July, up 7.7% y/y — marking the fastest expansion since March 2010. On a m/m basis, it grew by 4.4%. This could mean that BNM is taking a pause on its rate cut mechanism.

Nonetheless, the downside risk remains. The second wave of Covid-19 infections is expected in October/November. How severe and complex it will be remains unclear. Besides, domestic challenges amidst the backdrop of political noises, corporate restructuring, SMEs, NPLs and the labour market.

Taking a cue, the Perikatan Nasional government unveiled another round of fiscal stimulus, “Kita Prihatin” worth RM10 billion in a bid to help industries and citizens badly hit by the coronavirus pandemic. This brings the cumulative stimulus measures to RM305 billion with a fiscal deficit/GDP to 6.3%—6.5% from 5.8%—6.0%.

• Inflation in August fell for the sixth consecutive month by 1.4%y/y. With inflation for the first eight months averaging - 1.0%, it falls within our base case projection of -0.6%y/y and our lower end of -1.5%y/y.
• The poor showing was due to lower retail fuel prices. Brent crude oil price fell by 24.3% y/y to average US$45.0 per barrel in August. Hence, RON95’s average price slid to RM1.68 per litre versus RM2.08 per litre in August 2019. RON97 dropped to RM1.98 per litre from RM2.51 per litre and diesel fell to RM1.81 per litre from RM2.18 in August 2019.
• Besides, the implementation of the government’s electricity bill discounts until year-end will cushion some of the impact of utility charges on consumers. This will contribute to downward pressure to the CPI.
• The impact from both lower retail pump prices and electricity bill caused the headline consumer inflation to come in at the slowest pace since April. In August, headline inflation grew by 0.2% compared to 0.7% in July, on a monthly basis
• Meanwhile, excluding the fuel prices, core inflation in August grew at the same pace as in July by 1.1% y/y. However, on a monthly basis, the core inflation grew 0.2% in August from 0.0% in July, suggesting a pick-up in consumer confidence and spending following the easing of the MCO.
• Meanwhile, the economic conditions are seen improving. The Leading Index (LI) rose for the third consecutive month with July reading showing an acceleration of 7.7% y/y from 4.6% y/y in June — marking the fastest expansion since March 2010. On a monthly basis, the LI grew by 4.4% m/m in July from 3.8% m/m in June. This suggests the economic recovery is gaining some momentum following the relaxation of the MCO.
• This could mean that BNM is done with its rate cutting. The OPR is expected to stay unchanged at 1.75%. The cumulative 125 basis points’ cut in OPR this year, added with fiscal stimulus measures amounting to RM305 billion would continue to provide support to the economy.
• Nonetheless, the downside risk remains. The second wave of Covid-19 infections is expected in October/November. How severe and complex it will be remains unclear. Besides, domestic challenges remains amidst a backdrop of political noises, corporate restructuring, SMEs, NPLs and the labour market.
• Taking a cue from the potential challenges, the government announced on Wednesday (23 Sep) an additional economic stimulus package worth RM10 billion — “Kita Prihatin”. It is aimed at helping industries and citizens badly hit by the coronavirus pandemic. This brings the cumulative stimulus measures to RM305 billion. This will likely raise the fiscal deficit/GDP to 6.3%—6.5% from 5.8%—6.0%.
• The “Kita Prihatin” package includes RM7 billion in cash aid, assistance for small businesses and a wage subsidy scheme. The wage subsidy would be given to companies who are experiencing revenue reduction of up to 30% compared to last year since the recovery movement control order (RMCO). ]
• A wage subsidy of RM600 monthly will be given to a maximum of 200 employees each for three months. The implementation of the scheme was expected to benefit 1.3 million workers involving an allocation of RM2.4 billion.

Source: AmInvest Research - 24 Sept 2020