KUALA LUMPUR (Dec 26): Further improvement in the supply chain and a reduction in global demand may help to keep inflation within the 2.5%-3.0% range next year, said Kenanga Research.

Despite expectations of a deceleration in global growth next year, Malaysia's gross domestic product is projected to continue its expansion, potentially growing by more than 4.0% year-on-year (y-o-y), it said.

“With domestic inflation anticipated to remain comfortably below the 3.0% threshold on average, we foresee no inclination for rate cuts on Bank Negara Malaysia’s (BNM) agenda.

“Consequently, BNM is likely to uphold the status quo, maintaining the overnight policy rate at 3.0% throughout 2024,” Kenanga said in a note on Tuesday.

Nevertheless, the research house anticipates Malaysia’s headline inflation to maintain a 0.1%-0.2% month-on-month growth, driven by the potential resurgence of food prices, amid the looming possibility of a stronger El Niño weather phenomenon in 2024.

This, along with other external factors such as escalating geopolitical tensions, poses an additional risk of pushing prices higher.

“On the domestic front, the confluence of the government's subsidy rationalisation plan, an increase in the service tax, and the implementation of the progressive wage model is expected to heighten Malaysia's inflationary pressures,” it said.

Last Friday, the Department of Statistics Malaysia said the country’s November headline inflation slowed to 1.5% y-o-y (October: 1.8% y-o-y), a 33-month low and below Kenanga’s and market estimates of 1.7%, due to lower-than-expected food prices.