KUALA LUMPUR (Aug 16): Bank Negara Malaysia (BNM) has maintained its headline inflation forecast for 2024 in the range of 2.0% to 3.5%, even after accounting for the effects of fuel subsidy rationalisation.

Speaking after the release of the second-quarter 2024 gross domestic product (GDP) data, BNM governor Datuk Seri Abdul Rasheed Ghaffour said the impact of fuel subsidy adjustments is expected to remain manageable, thanks to government measures aimed at minimising cost increases for businesses.

The 2.0%-3.5% inflation forecast range has “to some extent” factored in the rationalisation of subsidies on diesel, as well as on RON95 if the RON95 rationalisation is implemented, Abdul Rasheed said.

“As of June, the inflationary impact of higher diesel pump prices in Peninsular Malaysia has been fairly limited, with little evidence of spillover into the broader consumer price index (CPI).

“But given what we’ve seen in the first half (1H2024), we believe that it’s (headline inflation) likely not to exceed 3%,” said the central bank governor. Meanwhile, the core inflation for the full year is expected to remain at 2.0%-3%.

The country’s headline and core inflation averaged 1.8% in 1H2024, BNM’s data showed.

“Of note, upside risks to inflation depend on the extent of the spillover effects from further domestic policy measures on subsidies and price controls to broader price trends, as well as global commodity prices and financial market developments,” Abdul Rasheed said.

Malaysia began its targeted fuel subsidy rationalisation starting with diesel, which was implemented on June 10 for Peninsular Malaysia, with the retail price set at RM3.35 per litre, from RM2.15 previously. The government expects to save RM4 billion annually through diesel subsidy rationalisation.

RON95, Malaysia’s most widely used gasoline, is expected to follow, but the plan remains off the table for now.

At the same time, the government is aiming to narrow the budget deficit to 4.3% GDP this year, from 5% last year.

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