KUALA LUMPUR: Analysts expect Bank Negara Malaysia (BNM) to maintain the overnight policy rate (OPR) at 3.00 percent through the end of 2024.
Public Investment Bank Bhd (PublicInvest) emphasised that the central bank's position in its monetary policy statement (MPS), coupled with existing risks, supports their forecast that the OPR will remain unchanged.
It said the introduction of the Employees Provident Fund (EPF) Account 3 is anticipated to boost consumer spending by around RM30 billion.
It added that the initiative is intended to help counterbalance the increasing cost of living following subsidy rationalisation, though it could also contribute to demand-pull inflationary pressures.
"The staggered introduction of the new pay structure for civil servants, with phase 1 in December 2024 and phase 2 in January 2026, poses additional challenges to fiscal targets and may intensify inflationary pressures by raising wage expectations within the private sector.
"However, the government's phased approach to salary adjustments reflects a strategy to manage these impacts and prevent significant economic shocks," it said,
PublicInvest noted that pension adjustments based on final salary revisions for retirees are set for December 2024, which prompted all ministries to intensify price monitoring to curb unjustified price increases.
The firm has lowered its full-year inflation forecast to 2.0 per cent, positioning it at the lower end of the official target range of 2.0 per cent to 3.5 per cent.
It said that this is due to the consumer price index (CPI) averaging only 1.8 per cent in the first seven months, along with minimal inflationary effects from the services tax adjustment and diesel subsidy rationalisation, as well as the anticipated delay in the RON95 subsidy reform.
"To prevent sudden inflationary shocks, a phased approach to RON95 subsidy rationalisation is essential, considering its 5 per cent weighting in the CPI basket.
"If implemented in the fourth quarter of 2024 (4Q24), we anticipate CPI will stay within the official target range," it adds.
CIMB Securities said in a note that pending further details on RON95 subsidy plans, its baseline scenario is for BNM to keep the OPR at 3.0 per cent through the end of 2025.
"The optimism on the growth momentum and uncertainty surrounding the inflation outlook heading into 2025 suggests the monetary policy will be data-dependent," it said.