BNM: Headline inflation to trend higher in 2022

This is partly due to the base effect from the discount on electricity prices implemented in 3Q21


MALAYSIA’S headline inflation is projected to trend higher in some months during the remainder of the year, partly due to the base effect from the discount on electricity prices implemented in the third quarter of 2021 (3Q21).

Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus said core inflation is expected to average higher in 2022 as demand continues to improve despite the high-cost environment.

She added that the extent of upside pressures on inflation is expected to remain partly contained by the existing price control measures, fuel subsidies and the continued spare capacity in the economy.

“Nevertheless, the inflation outlook continues to be contingent on upside risks stemming from the strength of domestic demand, global price developments and domestic policy measures,” she said during the 2Q22 GDP announcement in Kuala Lumpur today.

For the period of 2Q22, Malaysia’s headline and core inflation increased to 2.8% and 2.5% respectively compared to 2.2% and 1.7% in 1Q22.

Nor Shamsiah noted that the higher core inflation reflected an improvement in demand conditions amid the high-cost environment with price increases mainly driven by food away from home and other food items.

Meanwhile, Nor Shamsiah said the ringgit depreciated by 4.6% against the US dollar in 2Q22 and 6.3% year-to-date (as of Aug 10, 2022), broadly in line with the movement of regional currencies.

She attributed the decline to the continued strengthening of the US dollar following aggressive US monetary policy tightening, increased investors’ risk aversion due to the weaker global growth outlook and the military conflict in Ukraine.

“Nonetheless, elevated commodity prices and Malaysia’s economic recovery helped to cushion the downward impact from the external developments on the ringgit during the quarter. 

“Going forward, while domestic financial markets will continue to be subjected to episodes of heightened volatility, spillovers to domestic financial intermediation are expected to remain broadly contained, supported by Malaysia’s healthy external position and strong banking system,” she said.

On financing conditions, Nor Shamsiah said net financing to the private sector grew by 4.9% compared to 4.5% in 1Q22 amid higher growth in outstanding loans.

According to the governor, outstanding corporate bond growth moderated as growth in bond redemptions continued to outpace that of issuances.

Additionally, Nor Shamsiah highlighted that outstanding business loans grew by 5.5% compared to 4.3% in 1Q22 following strong expansion in loan disbursements for both working capital and investments. 

For households, she said outstanding loan growth increased further to 5.7% compared to 4.8% in 1Q22, with higher growth recorded across all loan purposes.

“Loan disbursements remained robust amid strong loan demand, particularly for the purchase of cars and houses. 

“Overall, loan repayments for both the business and household segments have been encouraging upon the lapse of repayment assistance programmes and the reopening of the economy,” she added.