KUALA LUMPUR: Analysts expect the recalibration of RON95 subsidies in fourth quarter of 2024 at the earliest, after the government kicked off diesel subsidy rationalisation today, with a float of diesel price.
From today, diesel pump price is RM3.35 a litre, up from the subsidised RM2.15 a litre.
CIMB Treasury and Markets Research in a noted today said with diesel announced, all eyes are on the more sizeable and consumer-impacting RON95 segment.
"We expect policymakers may opt to recalibrate RON95 only in Q424 – potentially coinciding with the tabling of Budget 2025 on Oct 11, 2024," the firm said.
It said this is considering that Ministry of Finance remains occupied with Budi Madani applications, which is expected to increase following the diesel price hike.
As at June, the approval only accounts for around 5 per cent of the 600,000 target that the government had expected i.e. 300,000 individuals and 300,000 small farmers and smallholders.
The government may wait for June and July inflation data to be released on Jul 24, 2024 and Aug 22, 2024 respectively to assess the impact of diesel mechanism before proceeding with RON95 subsidy cuts.
The wider implication of RON95 subsidy cut on household purchasing power as compared to diesel is also likely to hold the government's hand.
The direct contribution of a 10 per cent increase in RON95 retail price on headline inflation is estimated at around 0.5 per cent points (vs. diesel's 0.02 per centage points), based on the petrol consumer price index (CPI) weight of 5.5 per cent.
UOB Global Economics & Markets Research however said it is uncertain if RON95 subsidy rationalisation will be done before year-end.
It noted that Budget 2024 was silent on RON95.
The firm expects the timing of RON95 subsidy cuts to depend on how the effects of diesel fare and readiness of Pangkalan Data Utama (Padu), the database platform that determines eligibility of cash aid.
The direct and indirect effects of price hikes for RON95, which carries 5.5 per cent weight in overall CPI basket, will be more significant on inflation given that it affects bulk of 36.6 million registered motor vehicles and RM66.7 billion retail sales of automotive fuel in 2023.
Presently, non-subsidised RON95 is estimated to be priced at RM3.35 /litre (vs. subsidised price of RM2.05). Pending more developments on targeted diesel subsidies and announcements on RON95 fuel subsidies rationalisation, UOB maintains its 2024 full-year inflation forecast at 2.6 per cent for now.
CIMB however revised its headline inflation forecast from 2.7 per cent to 2.3 per cent for 2024 to reflect the milder-than-expected headline and core inflationat 1.7 per cent and 1.8 per cent respectively for the first four months of 2024.