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Malaysia: Impact of excluding T20 from fuel subsidies
KUALA LUMPUR: Public Investment Bank Bhd has estimated that eliminating fuel subsidies for the Top 20 per cent income group earners (T20) will increase inflation by an additional 0.45 to 0.75 percentage points annually.
Although headline inflation which includes food and energy prices had exhibited a downward trajectory primarily driven by the tempering of various cost factors, core inflation (excluding food and energy prices) is poised to persist at elevated levels due to the robust state of demand condition.
“The continued implementation of price controls and fuel subsidies will serve as partial mitigating factors, curbing the extent of inflationary pressure.
“It is essential to acknowledge that the inflation outlook carries a notable risk bias toward the upside, remaining acutely vulnerable to potential shifts in domestic policies pertaining to subsidies and price controls as well as developments within financial markets and global commodity prices,” it said as reported by Bernama.
It noted that without petrol subsidies, it is estimated that the actual price of RON95 has reached RM3.22 per litre compared with the present RM2.05 per litre.
“We believe that the subsidy ceiling for RON 95 and diesel set at RM2.05 and RM2.15 per litre may be subject to review and potentially increase gradually in the latter part of the year,” it said.
Deputy Finance Minister Datuk Seri Ahmad Maslan reportedly said on May 19 that the T20 group would no longer enjoy benefits meant for lower and middle-income earners with the implementation of targeted fuel subsidies for RON95 petrol and diesel next year.
Last Friday, the Statistics Department revealed that the consumer price index (CPI), which measures inflation, grew at a slower pace of 3.3% year-on-year (y-o-y) in April from 3.4% y-o-y in March, while core inflation also slowed to 3.6% y-o-y in April versus 3.8% in the previous month.
Moving forward, the brokerage anticipated that headline inflation in the country is likely to average between three and 3.5% in 2023 against Bank Negara and the Finance Ministry forecast of 2.8% to 3.8%, with the caveat that any amendments to the cap on retail oil prices or implementation of price control measures may affect its projection.
On the overnight policy rate (OPR) adjustment, the investment bank anticipated that Bank Negara would adopt a wait-and-see approach.
“Should Malaysia’s domestic economy surpass expectations, it is not inconceivable that the central bank may seek to optimise its monetary arsenal by normalising statutory reserve requirement from the current rate of 2% to 3% in the first half of 2024,” it said.
The central bank has increased the OPR by 25 basis points to 3% at its May 2-3 Monetary Policy Committee meeting.
Source: https://www.thestar.com.my/business/business-news/2023/05/30/impact-of-excluding———–t20-from-fuel-subsidies