Malaysia's April inflation rate eases, firms rate pause expectation
KUALA LUMPUR (Nikkei Markets) - Malaysia's consumer prices rose at a slower-than-expected pace in April, bolstering expectations that the central bank will likely keep the key policy interest rate steady through 2017, after annual inflation rate surged to eight-year high in the previous month.
The consumer price index - Malaysia's main gauge of inflation - rose 4.4% in April from a year earlier, driven mostly by costlier fuel and food, according to a statement from the Department of Statistics. That lagged a median 4.5% increase predicted in a Nikkei Markets poll of analysts and March's 5.1% on-year gain.
Economists expect tepid domestic demand to help moderate inflation in the months ahead but resurgent global commodity prices risk stoking pricing pressure.
"Core inflation remains well-behaved, and does not require monetary intervention," said CIMB Investment Bank's economist Michelle Chia. "We expect BNM to hold the Overnight Policy Rate at 3.00% in 2017."
Last week, Bank Negara Malaysia kept the benchmark policy interest rate unchanged at 3.00% at its third of the six scheduled meetings this year, noting that the recent rise in inflation is expected to moderate in the second half of 2017.
Economic growth, meanwhile, is expected to strengthen in the first quarter of 2017, "and to be sustained for the rest of the year," the central bank said. "At the current level of the OPR, the stance of monetary policy is accommodative and supportive of economic activity."
The food and non-alcoholic beverages index, which carries the largest weighting at 30.2%, climbed 4.1% from a year earlier in April, while non-food items rose 4.5%. The index for transport group, that includes gasoline and diesel, surged 16.7% year-on-year.
Core inflation, which excludes most volatile items such as fresh food and energy prices, rose 2.5% in April compared to the same month last year.
"Core inflation rate held steady while the currency has stabilised in recent months, indicating no immediate need for a tightening," RHB Research Institute wrote in a note.
Nomura economists Euben Paracuelles and Brian Tan forecast Malaysia's full-year headline inflation at 4% this year, the top-end of BNM's 3%-4% forecast range and higher than the 2016 print of 2.1%.
Bank Negara Malaysia has said headline inflation came in in-line with its expectation at 4.3% in the first quarter.
--Jason Ng--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300 companies.