Bank Muamalat Malaysia Bhd chief economist Afzanizam Rashid said the OPR is deemed to be supportive of Malaysia’s economic growth and positive for the ringgit, as the gap between the US Federal Reserve’s (Fed) Fund Rate and the OPR is expected to narrow in the near-term.
“What matters is the sequencing of the policy reforms.
“Thus far, the government has implemented several fiscal consolidation exercises,” he told Bernama.
He said these measures include revenue-enhancing initiatives such as the sales tax on imported low-valued goods, an increase in the service tax rate from 6% to 8%, e-invoicing for large companies, capital gains tax on foreign-sourced income and unlisted shares, and higher excise duties on chewing tobacco and sugared beverages.
“Additionally, expenditure optimisation measures have been introduced, including revisions to electricity and water tariffs and the rationalisation of subsidies for diesel and fresh food.
“Perhaps the rationalisation of RON95 prices could be put on hold for now, as the government is mindful of the potential inflationary impact of increasing RON95 prices, given its significant share in the consumer price index (CPI) basket at 5.5% compared to diesel’s 0.2%,” he added.
Meanwhile, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie concurred with the central bank that the economy remained on track for continued positive growth in the second half of this year.
Lee said the economy was stronger than market expectations in the first half of 2024, and this trend is expected to continue, supporting growth in exports, domestic demand, and strong investment activity from both the private and public sectors.
As for the inflation, he said the central bank believes that headline and core inflation remain under control and are unlikely to exceed 3%, as the effects of diesel price adjustments have been effectively managed.
He said inflation risks would persist into next year due to continued subsidy cuts for RON95 and other subsidised items.
“We will also monitor the potential impact of civil servant pay raises and the announcement of new minimum wages for the private sector.
“We need to watch whether the wage will pressure demand and inflation,” he said.
He also noted that the ringgit appreciated 9.3% from June 2024 to August 2024 as investors observed the Fed’s interest rate decisions and the positive outlook for Malaysia’s investments.
Lee highlighted that BNM’s efforts to encourage government-linked companies and government-linked investment companies to repatriate investment income and convert it to ringgit, alongside investor flows into foreign direct investment, capital markets, and the bond market, have further supported the ringgit.
Meanwhile, renowned economist Geoffrey Williams said it was expected that BNM would keep the OPR unchanged due to normal inflation levels, a growing economy, and the stabilisation of the ringgit.
“We do not expect inflationary pressures to be too strong in the future, so maintaining a stable monetary stance is the best approach.
“Now, the emphasis must be on structural reforms to raise incomes and create fiscal headroom,” he added.