Shamsiah emphasised that the spike will be temporary and headline inflation is expected to moderate thereafter. – File picture
PETALING JAYA: The expected headline inflation spike to above 5% in the second quarter this year due to a low base of -1.2% seen in the previous corresponding quarter does not warrant a monetary policy response, said Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus.
“This increase reflects supply-driven inflation and as long as there are no second round effects, our current assessments find that wage pressures are not excessive,” she said at the virtual launch of the BNM Annual Report 2020 on Wednesday.
“Monetary policy responses by the bank have always been forward looking.”
For the year ahead, the central bank expects headline inflation to average between 2.5% and 4%, in line with higher global oil prices and lapse of the tiered electricity tariff rebate that was introduced last year.
Shamsiah pointed out that one of the key indicators monitored by BNM is the underlying inflation, which is expected to remain subdued with core inflation to average between 0.5% and 1.5%.
“We do expect headline inflation to rise further in March and will temporarily spike above 5% in the second quarter, contingent on the price of RON95 remaining capped at RM2.05 per litre,” she said.
In contrast, the headline inflation for the second quarter of last year stood at -1.2%.
Given the RON95 price ceiling which has been in place since Feb 10, the rise reflects the domestic base effect, given the much lower domestic fuel prices observed last year and not to demand pressure.
“Let me emphasise, the spike will be temporary and headline inflation is expected to moderate thereafter,” said the governor, noting that rising inflation due to higher energy cost is also playing out in the UK, euro area as well as the Philippines
Moving forward, she noted that the monetary policy will take into account the temporary increase in headline inflation, the implications from the strength of economic recovery and developments related to Covid-19 on the overall outlook for inflation and domestic growth respectively.
The last time BNM had resorted to monetary policy measures was on July 7, 2020 which resulted in a 25 basis points cut to the overnight policy rate, citing a weak global economic condition and a projected negative global. The central bank’s next monetary policy meeting is scheduled for May 6, 2021.
Shamsiah pointed out that the higher global oil prices will result in a higher revenue collection for the Malaysian government on the back of a conservative oil price assumption adopted in Budget 2021.
“In the budget, the finance ministry assumed global oil prices will average at US$42 per barrel during the budget compared to the current level of around US$60 per barrel,” she said.
Source: The Sun Daily
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