KUALA LUMPUR: BMI, a unit of Fitch Solutions, anticipates that Bank Negara Malaysia (BNM) will maintain the overnight policy rate (OPR) at 3 per cent during its next meeting on Jan 22, 2025.
BMI said headline inflation declined slightly, in line with its forecasts, reaching 1.8 per cent year-on-year (YoY) in November, down from 1.9 per cent in October.
"Barring the implementation of further domestic policy measures and global price shocks, inflation should average 1.8 per cent in 2024 and 2.4 per cent in 2025 on our projections."
"The central bank is aligned on this, having acknowledged that while inflation is "expected to remain manageable" in 2025, its outlook remains subject to the details of the implementation of domestic policy measures.
"We believe this is directed at the removal of blanket subsidies for RON95 petrol announced at Budget 2025, but details of which remain scant," it added.
Looking beyond the upcoming meeting, BMI projects that BNM will keep the OPR unchanged until the end of 2025, noting that the central bank has fewer concerns regarding the economic outlook.
Since its previous update, BNM's confidence in the economy remains intact, citing ongoing investment projects which will "raise exports and expand the productive capacity of the economy".
"This chimes with the recent upward revisions to our 2024 and 2025 growth forecasts of 5.0 per cent and 4.7 per cent, respectively," it added.
BMI highlighted upside risks to its inflation forecast amid the slew of government initiative announcements which could easily nudge inflation higher.
These include an increase in the monthly minimum wage beginning February 1 2025 to RM1,700 from RM1,500 currently and the expanded scope of sales and services taxes effective May 1, 2025.
It said prices could come under renewed pressure when the impact of the phased salary adjustments of 15 per cent for civil servants (5 per cent of population) – of which 8 per cent took place in December 2024 (Phase 1) – becomes more keenly felt.