Initially slated for implementation in January 2020, the government has delayed the implementation of the PSP until further notice. According to Domestic Trade and Consumers Affair minister Datuk Seri Saifuddin Nasution bin Ismail, the postponement was to allow more explanations to be conducted in order to better prepare Malaysians to accept PSP and for registration of M40 recipients. Currently, our inflation forecast stands at 2.0% YoY, based on the assumption that Brent oil price averages USD60/pb and ringgit averages at USD/MYR4.15- 4.20 in 2020. Assuming that the PSP's implementation delay is still within 1Q20, our 2.0% inflation forecast for 2020 seems broadly intact. However, should government delay the implementation to mid-year, our 2020 inflation forecast would be lowered to 1.7% YoY, ceteris paribus. Given the scarcity of details regarding the new implementation timeline, our 2020 inflation forecast remains at 2.0% YoY.

NEWSBREAK

Earlier this week, Domestic Trade and Consumers Affair minister Datuk Seri Saifuddin Nasution bin Ismail says the government will delay the implementation of the Petrol Subsidy Program (PSP) until further notice. “The Cabinet meeting on Dec 18 has decided that the implementation of the PSP which is scheduled to begin on January 2020 will not go ahead until a time that will be announced later,” he said. Datuk Seri Saifuddin Nasution bin Ismail said the postponement was to allow more explanations to be conducted in order to better prepare Malaysians to accept the PSP and to facilitate the registration of M40 recipients.

HLIB’s VIEW

Brief recap. To recap, prior to GE14 (May 2018), fuel price (RON95) was floated based on the Automatic Price Mechanism (APM) with price changes every week. Following change in government post GE14, the new PH administration temporarily fixed fuel price at RM2.20/litre (April 2018-Dec 2018) and then at RM2.08/litre (March 2019-current) while drawing up plans for PSP.

Manifesto pledge. The move to implement the PSP is in line with one of PH's key manifesto pledges; specifically to subsidise fuel for the B40. During Budget 2020 (in Oct 2019), Finance Minister Lim Guan Eng said that the PSP will also be extended to qualifying vehicles within the M40 group. Consequently, RM2.4bn was allocated for this program, with 8 million motorists expected to benefit from it.

Inflation impact. Currently, our 2020 inflation forecast stands at 2.0% YoY; this is based on the assumption that Brent oil price averages USD60/pb and ringgit averages USD/MYR4.15-4.20 in 2020. Fuel takes up an 8.5% weight within the CPI basket. Assuming that the PSP's implementation delay is still within 1Q20, our 2.0% YoY inflation forecast for 2020 seems broadly intact. However, should the delay push implementation to mid-year, our 2020 inflation forecast would be lowered to 1.7% YoY, ceteris paribus. Given the scarcity of details regarding the new implementation timeline, our 2020 inflation forecast is left unchanged at 2.0% for now.

Still eyeing for an OPR cut. While there are some signs of stabilisation in global economic and financial environment, we remain cautious on the sustainability of positive momentum as trade uncertainties, geopolitical volatility may resurface in 2020, after the proposed signing date between US and China on phase 1 trade deal on 15th Jan 2020 and Brexit on 31st Jan 2020. Hence, we maintain our expectation for BNM to reduce OPR by 25bps by 1H 2020.
 

Source: Hong Leong Investment Bank Research - 3 Jan 2020