Malaysia inflation forecast at 1.5% yoy for September

There is room for monetary loosening when necessary, says OCBC.

OCBC Treasury Research noted:

Profit taking has set the tone once more in the KLCI on Friday, and the bourse ended -0.13% to close at 1653.36. The government’s decision to postpone changes to the CPO export tax structure led to some disappointment in the market, but presumably the dominant factor remains on the external front.

A cautious tone is likely to prevail as we kick off the new week. CPI data this week is likely to continue indicating soft inflation reading in Malaysia for now. Watch the 1650 psychological support.

We forecast inflation at 1.5% yoy for September, just a notch higher than the previous month’s but unlikely to make any material impact on the market, as we don’t expect any reaction from the BNM at this point.

Do note that we remain of the view that the underlying demand pressure in the economy means that inflation might have bottomed out in Malaysia and should tilt higher towards 2013.

That said, even if inflation were to creep higher towards 2.5-3.0% in 2013, it remains within the BNM’s comfort zone and that to some extent, there is still some room for monetary loosening when necessary.

As this juncture, we expect the OPR to remain stable at 3.0% for the foreseeable future.