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PETALING JAYA: Malaysia’s lower-than-expected consumer prices in July have prompted more analysts to downgrade their inflation forecasts for the year, giving the central bank space to continue supporting economic growth.

Analysts at Maybank Investment Bank Bhd (Maybank IB) and RHB Bank Bhd trimmed their annual inflation projections for Malaysia to 2% and 2.1%, respectively, from 2.4% and 2.6%, after consumer prices undershot estimates for the second straight month.

They joined United Overseas Bank Ltd and Kenanga Investment Bank Bhd, who lowered their forecasts last month.

Higher diesel prices since June have had a muted impact on inflation, largely owing to government intervention measures.

That will allow Bank Negara Malaysia to keep the benchmark interest rate at 3% for the rest of the year, said RHB economist Chin Yee Sian in a statement yesterday.

The central bank maintained its full-year inflation forecast range at 2%-3.5%, though it noted that consumer prices are unlikely to exceed 3% in 2024, barring shocks.

“Its next meeting to decide on interest rates will be in September.

Going forward, the trajectory of inflation will hinge on the timing of RON95 subsidy reforms, potential demand upsides from partial pension fund withdrawals, and spill-over impact from higher global commodity and food prices, said Chin.

She added that a planned increase in civil servant salaries could also raise demand-pull inflation pressure.

Meanwhile, Maybank IB analysts said they expect the government to only implement subsidy rationalisation for the country’s cheapest and most commonly used gasoline next year.

Given the uncertainty in timing, the quantum, and the mechanics of the move, they forecasted inflation to range between 2.5% and 3% in 2025.