Consumers may remain cautious in their spending, opting to preserve capital amid the challenging job market no thanks to Covid-19. — Bernama photo
KUCHING: Analysts are generally cautious on the outlook of inflation in 2020, with some projecting that it is more likely to remain in the deflationary region.
According to the research arm of Public Investment Bank Bhd (PublicInvest Research), consumers may remain cautious in their spending, opting to preserve capital amid the challenging job market no thanks to Covid-19.
PublicInvest Research recapped that unemployment level (five per cent in April; 3.8 per cent in March) and unemployed persons (48.8 per cent year on year (y-o-y); 778,800) shot up in April.
“Tight job market and renewed concern over a new wave of Covid-19 may weigh on private consumption activities which form the basis of our muted inflation projection, at +0.8 per cent in 2020F,” the research arm said.
“This will be further compounded by weak oil price projection, no thanks to recession in key economies like the US, Eurozone and Japan.”
Meanwhile, AmBank Research opined that the inflation outlook remains weak.
“It is more likely to remain in the deflationary region,” the research house said. “This is despite global crude oil prices that are seen to have stabilised.”
That said, AmBank Research highlighted that the current economic outlook remains weak.
This was reflected by April’s Leading index (LI) which fell further by 5.5 per cent year on year (y-o-y) from -3.6 per cent y-o-y in March – the lowest since February 2009 – impacted by the Movement Control Order (MCO) that disrupted supply and demand.
“The labour market was languid, with unemployment at five per cent in April. There will also be an impact from social distancing.
“On that note, headline inflation is likely to hover between -0.6 per cent and -1.5 per cent.”
As for Affin Hwang Investment Bank Bhd (AffinHwang Capital), the research firm projected that in view of short-term deflation risk, headline inflation will average 0.1 per cent for 2020, compared to 0.7 per cent in 2019.
On the overnight policy rate (OPR), Affin Hwang Capital believed Bank Negara Malaysia (BNM) will keep it at two per cent at the next Monetary Policy Committee (MPC) meeting on July 7, and possibly in the remaining two meetings on September 10 and November 3 this year.
“The country’s domestic demand is gradually showing signs of recovery from the re-opening of almost all essential and non-essential services since May 4, 2020, supported by stimulus measures from monetary and fiscal policy fronts, which have reduced some downside risk to the economy,” the research firm said.
PublicInvest Research also opined OPR could be maintained at two per cent in the near term.
“Further cuts may not produce the desired results as the economy is being weighed by weak demand which requires different policy prescriptions,” PublicInvest Research said.
“Malaysia’s success in taming the Covid-19, among the earliest in the region to flatten the curve, also suggests policy rate paucity for now.”