By Nurul Jannah Kamaruddin

KUALA LUMPUR, Sept 25 -- The low average inflation rate of 0.5 per cent for the first eight months of this year gives ample room for lowering the overnight policy rate (OPR) going forward.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid the low inflation rate  between January and August this year was due to lower transport sub indices, which fell 3.6 percent.

"The odds for a 25-basis point cut are getting higher in view of heightened external uncertainty," he told Bernama.

Similarly, RHB Research believes another OPR cut by Bank Negara Malaysia (BNM) is likely to support growth, given the cautious tone and downside risks emanating from the worsening US-China trade tensions.

The last time BNM reduced its rate by 25 basis points to 3.00 per cent was in May and the central bank decided to maintain the level during its Monetary Policy Committee meeting on Sept 12.

"This may happen late in the fourth quarter of 2019 or in the first quarter of 2020, and BNM will wait for FTSE Russell’s review in end-September to be passed before making its move," RHB Research said in a note today.

The research house said it is maintaining its headline inflation forecast at 0.9 per cent for 2019, before picking up to 2.00 per cent in 2020.

"A possible refloating of the RON95 fuel price -- once the targeted fuel subsidy is implemented -- could exert upward pressure on inflation," it added.

Meanwhile, United Overseas Bank (Malaysia) Bhd (UOB Malaysia) is retaining its 2019 full-year headline inflation estimate at 0.8 per cent, pending the roll-out of the targeted fuel subsidy scheme and stabilisation in Brent crude oil prices.

In its note, UOB Malaysia said Brent crude stood at US$63 per barrel today after spiking nearly 15 per cent to US$69 per barrel following concerns over Saudi Arabia's supply after the Sept 14 drone attack.

"That said, we project a higher average inflation of 2.5 per cent next year," UOB Malaysia said.

It said the implementation of the new targeted fuel subsidy initiative may see the price cap on RON95 petrol and diesel lifted once the scheme goes into effect.

"The effect of the haze on some food supplies such as vegetables and seafood should not have a material impact on September’s inflation print," it added.

In addition, it expects BNM to remain patient before making further rate adjustments despite further signs of weakness in global growth.

"The impact from the OPR cut in May could take up to three to four quarters.

"Moreover, we expect the upcoming Budget 2020 will include expansionary measures to support the domestic economy," it said, adding that this would lighten the pressure on BNM to pursue another rate cut this year.

UOB Malaysia said the neutral guidance based on September’s monetary policy statement further underscores that BNM may opt to keep rates unchanged at the next meeting on Nov 5, the final monetary policy meeting for 2019.

In August, headline inflation increased 1.5 per cent, matching the bank and market expectations.

The uptick in the inflation was primarily driven by costlier food, jewellery, as well as medical products and services, which offset the impact of steady fuel pump prices.

-- BERNAMA