Hong Leong Investment Bank Bhd (HLIB) said the government’s recent move to rationalise fuel subsidies starting with diesel in Peninsular Malaysia will likely see a limited impact due to the fleet card mechanism and targeted cash transfers, coupled with diesel making up only 0.2% of the CPI basket.

In a research note, it said there have been no details on the implementation date or quantum of the cut.

“As we await further subsidy rationalisation measures, we maintain our CPI forecast at +2.6% year-on-year (y-o-y) for 2024,” it said.

The statistics department said April’s headline inflation was steady at 1.8% y-o-y, slightly below the consensus estimate of 1.9%.

Inflation was mainly supported by food and beverages, restaurants, hotels, housing, utilities, and other fuels, it said.

Meanwhile, Kenanga Research also retained its CPI target at 2.7% this year (2023: 2.5%), with upside risks primarily stemming from domestic policies.

It said the rationalisation of diesel subsidies is expected to have minimal impact on overall inflation, due to exemptions granted to most public and goods transport vehicles, including Sarawak and Sabah.

Kenanga said such exemptions should minimise the pass-through effect on the prices of goods and services.

“Nevertheless, uncertainties persist regarding the timing and mechanism of the RON95 rationalisation, which could exert significant pressure on consumer prices.

“Despite these considerations, the outlook for prices appears relatively contained, with inflation projected to remain below 3% in the coming years,” it said.

Kenanga said with the potential output supported by higher investments and productivity improvements, Bank Negara Malaysia may be inclined to maintain the overnight policy rate at 3% for the foreseeable future.