Upside risks of inflation expected from the price control, subsidy rationalization in 2024 - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

In my opinion, inflation for 2024 is expected to continue moderating lower due to lower cost pressures and steady domestic demand.

However, upside risks to inflation for 2024 is expected to come from the price control & subsidy rationalisation process from the second half of the year.

Hence, I expect full year headline inflation for 2024 to range between 2.0% to 2.5% depending on the extent of the implementation process of the subsidy rationalisation by the federal government.

Meanwhile economic growth for Malaysia in 2024 is expected to come in between 4.0% - 5.0% underpinned by an expected recovery in exports and continued recovery in tourist arrivals while domestic demand growth will be supported by continued employment and wage increases in the local economy.

Meanwhile, the Department of Statistics Malaysia disclosed that Malaysia’s economy in 4Q2023 grew by an estimated 3.4% which marginally higher than 3Q2023’s reading of 3.3%.

The growth was primarily driven by the services sector with all other key sector posting growth numbers. Inflation remained at 1.5% in December 2023. 

The International Monetary Fund (IMF) raised its latest global GDP growth projections for 2024 to 3.1% from 2.9% on the back of economic resilience across the world while its overall global inflation outlook remains unchanged at 5.8%.

For 2025, IMF expects GDP growth to expand slightly to 3.2% while inflation is projected to trend lower to 4.4% due to the effects of restrictive monetary policies and easing of supply chain issues.

The local stock market continued to edge higher over the past week propelled by net foreign & local institutional buying as the interest from foreign investors are likely to return now that the interest rate cycle has peaked in the US.

This momentum helped push the KLCI Index to end the week higher by 10.30 points to 1,516.58 points (+0.68%).

Trading activities on the market remains robust at RM2.87 billion per day last week from RM3.19 billion per day in the previous week.

With the KLCI now closing consistently above the psychological support level of 1,500 points, I expect it to trade between 1,500 points and 1,525 points in the coming week.  

US Treasury yields fell sharply over the past week after the US Federal Reserve’s first Federal Open Market Committee (FOMC) meeting for the year indicated that the US central bank won’t be considering any further interest rate hikes in the future and will look to start cutting interest rates later this year if inflationary data continue to show sustained declines.  

UST 10-year yields fell by 12 basis points to 4.02% level following the FOMC meeting as the entire market raised their expectations for the Federal Reserve to start cutting the Federal Funds Rate (FFR) before the 2nd half of the year.

The 10-year yield now has virtually priced in a 123 – 148 basis points reduction for the medium term from the current FFR rate of 5.25% - 5.50%.

Meanwhile, the local 10-year the MGS yield fell a further four (4) basis points to 3.76% which narrowed the negative yield differential to just 26 basis points.

The Ringgit managed to stabilise over the past week after two consecutive weeks of weakness due to net outflows of funds.

The local currency ended the week higher against the US Dollar at RM4.7155 (-0.95sen) and the Euro at RM5.0286 (-10.55sen) while remaining virtually unchanged against the Pound Sterling at RM6.0182.

However, it continued to weaken against the Singapore Dollar at RM3.5313 (+0.48sen).

The Ringgit’s movement was within my expectations and I am maintaining my USD-MYR trading range at RM4.65 – RM4.75 as the US Dollar strength is likely to remain elevated until the market gets more clarity from the US Federal Reserve on their timeframe to cut interest rates. - DagangNews.com

Manokaran Mottain is an economist with many years of experiences with a number of financial institutions and is now managing his own firm, Rising Success Consultancy Sdn Bhd and has been writing his economic analysis on a weekly basis in DagangNews.com since 2022.      

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