Malaysia: Semi-centennial deflation – Standard Chartered

Consumer price index (CPI) contracted at the steepest pace in more than five decades. Economists at Standard Chartered Bank lower the CPI inflation forecast for 2020 to -1.8% y/y from 0.8% on sharply lower oil prices. USD/MYR is trading at 4.3455.

Key quotes

“Malaysia’s CPI fell 2.9% y/y in April – the largest pace of decline in slightly over 50 years. This is worse than even the GFC period low of -2.5% y/y (recorded in August 2009).”

“With oil prices expected to remain low, tiered discounts for electricity consumption in place for six months in 2020 and the poor economic outlook for Malaysia, we lower our average inflation forecast for 2020 to -1.8% y/y (+0.8% prior). Meanwhile, we raise our 2021 inflation forecast to 3.3% y/y (2.5% prior) on a low base effect, higher projected oil prices in 2021, and a rebound in economic activity.”

“Growth and unemployment is likely key and we expect the subdued growth outlook and deteriorating labour market to prompt another 25bps cut in July. This will bring total rate cuts by the central bank to 125bps in 2020. Beyond that, we think BNM may prefer to monitor whether external demand collapses further or recovers as economies try to reopen.”