The newly introduced withdrawals from the Employees Provident Fund's (EPF) Account 3 are expected to stimulate economic activity without significantly affecting inflation, said Bank Negara Malaysia (BNM) Governor Datuk Abdul Rasheed Ghaffour.
Speaking at a press conference on Friday (May 17) during the announcement of the first quarter 2024 gross domestic product figures, Abdul Rasheed indicated that the impact of the flexible account withdrawal, as well as a planned salary increase for civil servants would be minimal.
Rasheed further reported that headline inflation in the country is anticipated to remain moderate this year, ranging between 2.0 per cent and 3.5 per cent, reflecting stabilising demand and contained cost pressures.
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Speaking at a press conference on Friday (May 17) during the announcement of the first quarter 2024 gross domestic product figures, Abdul Rasheed indicated that the impact of the flexible account withdrawal, as well as a planned salary increase for civil servants would be minimal.
Rasheed further reported that headline inflation in the country is anticipated to remain moderate this year, ranging between 2.0 per cent and 3.5 per cent, reflecting stabilising demand and contained cost pressures.
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NewsTranscript
00:00 Both headline and core inflation remained moderate in the first quarter of this year,
00:06 reflecting a stabilising demand and contained cost pressures.
00:11 Headline inflation increased slightly to 1.7%, fourth quarter last year it was at 1.6%, and
00:17 this mainly reflects the effects of adjustments to administered prices.
00:22 Particularly, this included the higher water tariffs and service tax on electricity bills
00:27 for high consumption uses.
00:30 Nonetheless, this was partly offset by the lower core inflation, which declined to 1.8%
00:37 during the quarter.
00:39 During the fourth quarter last year, it was at 2%, and this is largely driven by the continued
00:45 easing in the food and beverages segment.
00:49 In 2024, inflation is expected to remain moderate amidst stable cost and demand conditions.
00:56 And for the year as a whole, headline and core inflation are projected to average 2%
01:01 to 3.5% and 2% to 3% respectively.
01:06 Notably, the outlook remains dependent on the implementation of the massive policy on
01:12 subsidies and price controls, global commodity prices, and financial market developments.
01:20 And of note, the wider forecast range for headline inflation has incorporated some potential
01:25 impact from the implementation of fuel subsidy rationalisation.
01:32 On the downside, lower domestic inflation could potentially stem from the weaker than
01:37 expected global growth conditions.
01:40 This could manifest both in lower commodity prices as well as lower domestic demand conditions
01:46 following the weaker external demand.
01:48 The question in terms of EPF, if you know that introduction of the account tree is actually
02:12 to balance between the future needs in account one and then capital investment account two,
02:19 and account three is to really address the current rainy days needs.
02:25 So that's the purpose of it.
02:26 If you look at it, even the account one, the percentage has increased from 70% to 75%,
02:32 so that will encourage people to save more for their retirement.
02:35 Then we look in terms of the potential impact on inflation, we believe it's going to be
02:41 quite minimal.
02:43 And of course, this will definitely contribute to some kind of growth.
02:47 Let's keep the economy positive.
02:50 In terms of impact on inflation, there will be an impact, but the impact will be minimal
02:55 based on our predictions.
02:57 I just want to ask, would it be fair to say that as long as inflation remains within the
03:03 forecast range that you gave, you would remain comfortable with keeping the interest rate
03:07 at 3%?
03:09 Second, how likely do you see inflation misbehaving this year, should the government implement
03:16 the subsidy reforms for diesel and RON95?
03:19 Vanessa, on your question in terms of inflation between 2% to 3.5%, so that's our projection
03:25 for this year, and how does this relate to our monetary policy and OPR?
03:31 In terms of the considerations for the monetary policy, what we do is that we look at the
03:35 – based on the basic conditions at the point of time, and we look in terms of what would
03:40 be the outlook for both inflation and growth.
03:44 So that's where I think the monetary policy will remain in terms of the focus.
03:49 And this will be data-dependent, and it depends on every time the MPC meets, what will be
03:54 the changes that we see in terms of outlook for inflation and also growth.
03:59 So that's one of the monetary policy.
04:01 We believe that the current level of growth and inflation, and the current level of OPR
04:06 at 3%, is very supportive of the economy.
04:10 In terms of the impact on RON95 and diesel adjustments to inflation, I would say that
04:23 we have actually taken into account some of the impact.
04:26 That's why the range of the inflation to between 2% to 3.5% to take into consideration
04:30 some of the adjustments of diesel and also RON95.
04:36 And in terms of the assumption that we take is that we take the possible introduction
04:42 of this policy to be gradual and on a sequence approach, not a one-off approach.
04:48 That's the assumption that we take.
04:50 So that's where we came up with the 2% to 3.5%.
04:54 And of course, in terms of impact to growth, we can see from two perspectives, short-term
05:00 and also long-term.
05:01 Short-term, it may have some impact in terms of consumption and also investment, but this
05:08 could be mitigated by the cash transfer or income transfer that the government is thinking.
05:16 But the long-run impact is that this could be positive for the country, because it will
05:21 help in terms of the fiscal position.
05:24 And then it will also lead to household spending to be more fuel-efficient, which is very positive
05:29 for the country.
05:31 And this will also encourage corporates to actually invest in terms of energy-efficient
05:36 production, renewable and smart energy, which will again create high-value job opportunities.
05:41 So that's in terms of the impact that we see from the nation of the subsidy rationalisation.
05:46 I would like to ask about your opinions in terms of what the right timing for government
05:53 to implement these subsidies rationalisations.
05:57 And also, in terms of the US and Europe also discussing one-to-rate cuts in the second
06:05 half, what's your view of BNM?
06:07 Do you follow the pace?
06:11 Thank you.
06:12 In addition to the question on the EPF Account 3, as well as subsidy rationalisation, does
06:21 BNM expect any inflationary impact from the 13% salary hike for civil servants?
06:28 And in addition to the previous question on the subsidy reforms, does BNM have any indicators
06:36 or expectations of when these reforms will be implemented, as we're already approaching
06:42 the middle of the year?
06:44 I think looking at the current environment in terms of growth, I think we are experiencing
06:50 good growth numbers between 45% and with the moderating trend in inflation, we believe
06:56 this provides a very good window of opportunity for us to undertake the subsidy rationalisation
07:02 and many reform measures.
07:03 Second, in terms of the rate cuts by the US and Europe, whether we follow the pace in
07:11 terms of the rate cuts.
07:15 In terms of our multiple policy considerations, we look at the domestic perspective in terms
07:20 of what will be the impact, what will be the outlook for growth and profitability over
07:27 the next couple of months moving forward.
07:31 What we'll do is that we only take in terms of what happens globally, for example the
07:36 rate cuts in the US and Europe, we take that in so far as how this will have an impact
07:42 in terms of our growth outlook and our inflation outlook for Malaysia.
07:47 So that's how we look at it.
07:48 But that doesn't mean that we'll follow the steps that have been taken by any particular
07:52 country.
07:53 So that's how we look at it from a policy perspective.
07:58 Daniel, your question in terms of the salary of the civil servant.
08:03 Of course the salary adjustment will support the consumption, but this salary adjustment
08:08 will only happen in December.
08:10 So for this year, that should not affect very much in terms of the inflationary pressure
08:16 or inflation project that we have.
08:19 But it may come in for next year.
08:21 But based on our past experience, we have seen that adjustments in salary does not have
08:28 a huge impact on inflation.
08:31 So it will be within the expectation.
08:35 In terms of when the rationalisation will be implemented, I think let's wait for the
08:42 government to make the relevant announcement on this.
08:46 And there are a lot of matters that need to be looked at because these are very important
08:50 decisions, not only in terms of how do you do it, in terms of the magnitude and the sequencing,
08:57 more importantly how do you ensure that there's a fair and equitable income transfer to the
09:04 targeted segments of society.
09:06 So that's where I think the complexity of it.
09:08 So perhaps I think let's wait for the government to announce it.
09:10 What are your thoughts on whether the CPI is still representative of the actual inflation
09:16 in the country?
09:17 That question in terms of from Daniel, in regards to whether the CPI is representative,
09:21 it is certainly representative because it's based on the basket of goods that is commonly
09:26 being used by the society, by the rakyat.
09:29 But of course, as I said earlier on, there are in terms of differences of perception
09:35 in regards to what do they see as inflation expectations of the public.
09:42 That is different.
09:43 But in terms of the numbers itself, CPI does capture in terms of the growth of the prices
09:49 in Malaysia.
09:51 Okay.
09:52 Thank you.
09:53 Thank you.
09:54 Thank you.
09:55 Thank you.
09:56 [BLANK_AUDIO]