KUALA LUMPUR, Oct 19 — Malaysia’s headline inflation is expected to remain manageable at 1.9 per cent in 2026.
OCBC Group Research revised its headline inflation forecast to 1.9 per cent from two per cent previously, while RHB Investment Bank Bhd (RHB IB) retained its projection at 1.9 per cent, compared with year-to-date inflation of 1.8 per cent.
In research notes today, both OCBC and RHB IB noted that headline inflation eased to 1.8 per cent year-on-year in September from 1.9 per cent in August.
OCBC said food and utilities inflation eased to 1.8 per cent and 1.4 per cent from 1.9 per cent and 2.1 per cent, respectively, more than offsetting higher transportation inflation of 2.5 per cent from two per cent in August.
“With headline Consumer Price Index (CPI) averaging 1.8 per cent year-on-year for the first three quarters, we lower our 2026 headline CPI average forecast to 1.9 per cent from two per cent previously, implying modestly higher readings in the coming months,” it said.
Meanwhile, RHB IB said continued price controls and subsidy measures should help moderate the pass-through of higher commodity costs to consumer prices.
“The restoration of the monthly BUDI95 subsidised petrol quota from 200 litres to 300 litres, effective September 1, 2026, and its extension into 2027 should provide additional relief to eligible motorists, particularly those with higher fuel consumption,” it said.
On the outlook, RHB IB added that inflation for the remainder of 2026 and into 2027 would be shaped by global commodity price movements, domestic policy adjustments, and potential upside risks from food prices.
“Persistent geopolitical uncertainties and prolonged disruptions to shipping through the Strait of Hormuz have heightened the risk of further increases in Brent crude oil prices, while recent data indicated gradually intensifying upstream cost pressures.
“While these developments could add to cost pressures, we expect the pass-through to consumer prices to remain gradual, supported by price controls, subsidies and a relatively stable ringgit,” it said.
RHB IB also remained vigilant to potential food inflation pressures as El Nino-related weather disruptions and prolonged dry conditions could reduce crop yields, particularly for key ASEAN agricultural commodities such as rice and palm oil.
Mitigation measures include improved water management, irrigation upgrades, and food security initiatives, while strengthening preparedness across the paddy, livestock, and food crop sectors.
Overnight policy rate (OPR)
On monetary policy, both OCBC and RHB IB expect Bank Negara Malaysia (BNM) to maintain the OPR at 2.75 per cent at the upcoming November Monetary Policy Committee meeting.
RHB IB said robust economic prospects and manageable inflation should support a broadly stable policy stance in the near term, with no immediate need for further rate adjustments.
“However, we expect the central bank to deliver a token 25 basis points (bps) hike in the first half of 2027, which we see as a normalisation move towards a more neutral policy setting rather than a response to significant inflationary pressures.
“The move would be supported by resilient growth dynamics and would provide the central bank with greater policy space to respond to future shocks, while maintaining a measured approach to monetary normalisation,” it said.
Meanwhile, OCBC said the choice between normalising the policy rate by 25 bps on November 5 or at the meeting in early January was becoming a closer call.
The solid growth outlook allows for more immediate normalisation, while contained price pressures afford BNM a longer runway.
“Indeed, the BNM Governor’s observation that decisions will be data-dependent and that BNM has room to act also indicates that a normalisation to three per cent is on track.
“On balance, we err towards a 25 bps hike in January, but it remains a close call,” it said.
Gross domestic product (GDP) growth forecast
On economic growth, OCBC said strong September trade data suggested upside risks to the advance third-quarter GDP growth estimate of 5.3 per cent.
Goods exports grew 54.5 per cent year-on-year in September from 45.4 per cent in August, with electrical and electronics exports remaining the main driver.
It maintained its full-year GDP growth forecast at 5.2 per cent, as the economy expanded by 5.5 per cent in the first three quarters of 2026.
