KUALA LUMPUR (March 21): Inflation is anticipated to remain manageable in 2025, supported by easing global commodity prices and a limited domestic demand pressures, said RHB Research.

RHB said the inflation path will be shaped by local policies and commodity price trends, influenced by the extent of subsidy rationalisation, potential upward pressure from the expansion of the sales and service tax (SST), possible demand-pull pressures from higher household incomes, and fluctuations in global commodity prices.

"While fiscal reform measures may create some upward pressure on prices, their overall impact on inflation is expected to be limited, as long as they are implemented gradually and in an orderly fashion," the research house said in a note on Friday.

RHB's inflation forecast for 2025 remains at 2.4% year-on-year.

The Department of Statistics Malaysia earlier in the day announced that the consumer price index — Malaysia’s main gauge of inflation — rose 1.5% year-on-year in February. The pace matched the median estimate of 1.5% in a Bloomberg survey and was lower than January’s 1.7% rise.

On a month-on-month basis, the index was up 0.4%.

UOB said that the latest inflation outturns remain in line with its assessment, whereby headline inflation will likely reverse course to above 2% levels by mid-2025.  

"Core inflation, which recorded a second month of increases, also solidifies our view of a headline inflation uptrend in 2H25. Hence, we maintain our 2025 full-year inflation forecast at 2.3% for now [Finance Ministry estimate: 2-3.5%, 2024: 1.8%], with upside risks mainly emanating from domestic price policy changes, global trade and tariff policies, volatility in global commodity prices and currency fluctuations.

As such, UOB maintains its stance for a stable overnight policy rate (OPR) throughout 2025, as both domestic growth and inflation outlooks remain stable. (CIMB: this supports an extended pause of the OPR at 3% throughout 2025.

Meanwhile, CIMB Investment Bank said forward-looking indicators, including wage growth in the manufacturing and services sectors, as well as hiring activity (employment growth), continue to show a modest trend.

"This suggests that core inflation is likely to remain subdued in the coming months," it said in a note.

CIMB said that given that inflation is expected to remain benign throughout the year, staying within the finance ministry's target, this supports an extended pause of the overnight policy rate at 3.00% throughout 2025.

“Key factors to monitor include the spillover of the recent minimum wage revision, the expansion of the sales and service tax, the planned targeted subsidy for RON95 in mid-2025, and electricity tariff adjustments in July,” it said.

CIMB also reiterated its expectation for an extended pause on the OPR at 3%, with inflation expected to average 2.6% in 2025.

RHB also maintained its view that the OPR is likely to remain at 3%, assuming steady economic prospects and manageable inflation pressures.

Similarly UOB said that unless external risks lead to significant shocks, Bank Negara Malaysia is expected to adopt a "wait-and-see" approach rather than making an unexpected pre-emptive rate cut in the coming months.