The Overnight Policy Rate (OPR) is likely to be revised upwards next year following the government's plan to implement the rationalization of the RON95 petrol subsidy which could trigger a new round of inflationary pressure.
Economic analyst, Dr Mohamad Khair Afham Muhamad Senan, said Bank Negara Malaysia's (BNM) last Monetary Policy Committee (MPC) meeting for 2024 on November 6 (Tuesday) will be an important point in the setting of interest rates in Malaysia.
He also said that the general expectation among economists is that BNM will maintain the OPR at 3.0% given that the inflation rate that continues to be low remains below 2.0% throughout the year.
This period of low inflation reflects the success of the monetary measures that have been taken before as well as the stability of the prices of goods in the foreign market.
However, the situation in 2025 is likely to trigger a review of monetary policy. The government's plan to focus on RON95 petrol subsidies in mid-2025 could cause inflationary pressure.
Subsidy rationalization is expected to increase the cost of fuel, an important component of transportation and production costs that has the potential to cause massive inflation.
Not only that, the implementation of the minimum wage increase scheduled for 1 February 2025 from RM1,500 to RM1,700 will have implications for inflation.
The interaction between rising wages and rising consumer spending also needs to be taken into account.
As workers receive higher wages it is likely that domestic spending will increase and may spur short-term economic growth but also increase price pressures.
If this happens, BNM may have to raise interest rates to control inflation to prevent the economy from being too depressed.
