In its monthly economic view, the investment bank has maintained its 2024 headline inflation projection at 3.3% year-on-year (y-o-y).

“According to our estimates, the proposed fiscal consolidation measures are projected to lift the headline inflation by 0.7% – 1.1% (versus 2.5% y-o-y in 2023).

“So far, the inflation risks are cushioned by steady food prices, partially due to the continuation of food subsidies and price controls for staple food items,” it said.

RHB IB said the actual magnitude of the upside risks would hinge on a few key factors.

It said these include the effective date of implementation for fuel subsidy rationalisation, the quantum of the prices and tariffs adjustments, and the strength of second-round impacts on household spending and business costs.

“At this point, there is no mention of the effective date for fuel subsidy rationalisation or the new retail fuel prices.

“The rough timeline for fuel subsidy rationalisation is for diesel prices to be rationalised by Q2 2024, followed by RON95 fuel subsidy rationalisation in the second half (H2) of 2024,” it added.

Meanwhile, the bank said the overnight policy rate is likely to be maintained at 3% for 2024.

RHB IB said it sees the lack of impetus for Bank Negara Malaysia to tweak its policy rate level this year, considering the rosier domestic economic prospects amid the uncertainties in the inflationary trajectory.

“A wide official inflation range of 2% to 3.5% should provide sufficient room against future price movements.

“The central bank might hold its benchmark rate until there is greater clarity over the exact timeline and magnitude of fuel subsidy reform while accessing the lagged impact on overall inflationary trajectory and economic momentum,” it added.