KUALA LUMPUR (Sept 23): Malaysia’s move to adjust subsidies for the widely used RON95 fuel is unlikely to have a significant impact on inflation, economists said.

Preliminary estimates suggest that lowering the RON95 price to RM1.99 per litre for eligible Malaysians could reduce annual inflation by 0.1% to 0.2%, according to RHB Global Economics and Market Strategy in a note. The immediate effect will be just 0.03% to 0.04%, the research house said, as the scheme only begins at end-September.

Future refinements to the subsidy framework cannot be ruled out, as higher-income groups are not specifically addressed in this round. Households with luxury cars or high-value assets may also be excluded in later phases, RHB added.

“Inflation is expected to stay manageable this year, given the lack of excessive demand pressures and a potential economic slowdown in the second half of 2025. Cautious sentiment might weigh on business activity and private consumption, keeping price pressures in check,” RHB noted. The house maintained its 2025 inflation forecast at 1.6%, the lower end of the official 1.5%-2.3% range.

Malaysia’s consumer price index (CPI) rose 1.3% year-on-year in August, slightly higher than July’s 1.2% and in line with Bloomberg’s median forecast.

Meanwhile, Kenanga Research trimmed its 2025 inflation forecast to 1.5% from 1.7%, saying that while the Budi Madani RON95 scheme and broader service tax coverage may influence price trends, the overall effect will likely remain modest.

To hit earlier projections, the monthly CPI would need to rise 0.4% through year end — a scenario Kenanga sees as unlikely. It now assumes 0.2% monthly increases, easing the annual average to 1.5%.

MBSB Research also cut its 2025 inflation forecast to 1.4% from 1.8%, citing subdued cost pressures, the reduction in subsidised RON95 prices, and easing transport costs.

While demand could build following July’s overnight policy rate (OPR) cut, supported by a strong labour market, fiscal measures, and delayed subsidy changes, inflation is still expected to remain contained, it said.

MBSB also projects the OPR to stay at 2.75% for the rest of the year.

Read also:
Malaysia’s August inflation picks up slightly as insurance premiums climb, latest data show