KUALA LUMPUR: Inflation is expected to range between 2.5 per cent and 3.0 per cent in 2024 (2023: 2.5 per cent) with upward pressures, due to spillovers from new tax measures and the execution of targeted subsidies which will be phased in throughout 2024.

MARC Ratings in a note today said in view of the present level of growth and inflation, Bank Negara Malaysia (BNM) maintained the policy rate at 3.00 per cent in its March meeting.

Concurrently, the market consensus in March aligns with the US Federal Reserve's (Fed) projections, anticipating three cuts in 2024 as opposed to the previously anticipated five to six cuts after the December and January meetings. "However, a robust US economy and sticky inflation remain key risks to the interest rate outlook," MARC Ratings said.

The Fed raised its projections for core inflation and economic growth for 2024 to 2.6 per cent and 2.1 per cent (Dec 2023 projections: 2.4 per cent, 1.4 per cent), and lowered its unemployment projection to 4.0 per cent (Dec 2023 projection: 4.1 per cent).

The Fed's dot plot median remained at three cuts, similar to the December 2023 projection.

On the local front, the ringgit experienced a minor appreciation of 0.38 per cent against the greenback in March (Feb: -0.21 per cent), in line with the broad dollar weakness of 0.32 per cent (Feb: 0.85 per cent).

BNM evaluated the current level of the ringgit as undervalued, given underlying economic fundamentals and increased engagement measures to encourage foreign exchange conversions into ringgit by corporations and other institutions.

Concurrently, cumulative net foreign outflows stood at RM9.0 billion in February on a year-to-date basis, tracking the weakness of the ringgit and reversing 2023's gain of RM5.6 billion.

In March, the Malaysian Government Securities (MGS) market rallied in the first half of the month before retreating due to higher-than-expected inflation prints.

After the Fed held the policy rate steady in its March meeting, MGS yields moved in tandem with the drop in US Treasury yields, reflecting market expectations of fewer rate cuts to commence upon clearer signs of disinflation.

Despite this, MGS yields remained relatively flat over the month as the market was initially spooked by higher US inflation.

BNM estimates the domestic economy to grow between 4.0 per cent and 5.0 per cent in 2024 from 3.7 per cent last year, aligning with the government's estimate while highlighting a potential rebound in the manufacturing sector and a newly forecast contraction in the agricultural sector.

Domestic demand remains the anchor of the projection, supported by a lower unemployment rate, higher wage growth, continued government surplus, higher target for tourist arrivals and increased private investment growth. -ends-

https://www.nst.com.my/business/economy/2024/04/1036175/marc-ratings-expects-inflation-range-betweeen-25pc-and-3pc-2024