Domestic inflation rate to accelerate to 2.5 per cent this year

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KUALA LUMPUR: Malaysia’s inflation rate is expected to accelerate to 2.5 per cent this year, say several research houses.

Alliance Research Sdn Bhd (Alliance Research) said a recovery in commodity prices coupled with the  subsidy rationalisation programme and higher demand-driven pressures in the later part of the year would contribute to the higher inflation rate.

In an economic focus report on inflation, the research house said for most part of last year, Malaysia’s inflation rate remained steady or was in moderation in line with global commodity prices.

“We reckon the inflation rate would continue to edge higher this year, especially in the second half of the year.

“This is on account of expected recovery in global prices of selected commodities and in view of the impending subsidy rationalisation programme, which is expected to continue post the 2013 general election,” it said.

However, RHB Research Institute Sdn Bhd (RHB Research)  said the higher inflation would likely remain manageable and unlikely pose a threat to the economy.

“We project inflation to trend up to around 2.5 per cent in 2013 from 1.6 per cent last year,” it said, adding that Bank Negara Malaysia (BNM) indicated that its inflation rate forecast for the year took into account the expected higher global prices of selected food commodities and adjustments to domestic administered prices.

“With a challenging external economic environment, it suggests that there is no urgency for BNM to raise its key policy rate,” it said.

On the overnight policy rate (OPR), RHB Research believed the central bank would likely keep rates unchanged at three per cent this year.

“Risk to the OPR, however, tilts toward the upside, if global economic recovery turns up to be stronger-than-expected,” it said.

Sharing the same view, Alliance Research said Bank Negara Malaysia would have more room to keep the OPR at accommodative levels, given its low levels of inflation risks to recovery.

“We maintain our view that the OPR will likely remain unchanged at three per cent in 2013, ensuring an accommodative monetary policy stance and price stability in the domestic economy,” it added. — Bernama