Journey to Wealth
Economic Update - Inflation moderates further, no rate review till end-2012
- Malaysia's inflation rate continues to ease further to2.1% YoY in March (February: 2.2% YoY), the lowest since November 2010 ' inline with both our house estimate and market expectations (Bloomberg Poll).
- Slower growth rates were seen across the major groups. Theindex for Non-Food rose at a slower rate of 1.7% YoY (February: +1.8%), as thetransport category eased to 1.3% YoY (February: +1.4%) - potentially signalingthe ebbing effect of the impact of cuts in petrol subsidy at the beginning lastyear.
- Prices of Food & Non-Alcoholic Beverages, the groupwith the largest weightage in the inflation index, also remained steady at 2.9%YoY last month.
- Overall, while inflation in most countries is expected tofall in the coming months, a significant downside risk continues to be the highlevels of crude oil prices, including in Malaysia. However, in the medium term,a correction in prices is still on the cards on the back of an anticipateddecline in global demand as well as improvements on the supply side.
- For Malaysia, despite the sustained rise in commodityprices, particularly in crude oil, we still forecast inflation to moderate to2.5% for 2012, from 3.2% in 2011.
- In regard to monetary policy, given the expected level ofGDP growth remaining robust and the potential threat of rising inflation, we donot see any rate review for the rest of the year. OPR will remain at thecurrent level of 3% throughout 2012.
- In line with the recent data so far, we estimate that 1Q12GDP growth to slip just below 5% YoY - but, still near the trendwise growth of5%.
- For the remainder of the year, however, we expect GDPgrowth to improve thereafter, even rebound sharply to near 6% in 2H12, whichwould average the annual growth to around 5% this year.
- Apart from a strong domestic demand, we also anticipatesome stability in the Eurozone economies by the end of the year, a stronger USeconomy in the coming quarters, as well the further roll-out of major ETPprojects in the coming months. In addition, the moderating inflationarypressures would also be positive for the domestic economy in 2012.
Source: AmeSecurities
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