Headline inflation sustained its downward trend for the 10th straight month and hit a 14-month low at 2.4% y/y in Jun (May: 2.8%). The reading matched our estimate and Bloomberg consensus. The deceleration was contributed by almost all consumer price index (CPI) components, except for the healthcare segment. Base effects and the continuation of government subsidies also helped to bring down the country’s consumer price pressures during the month. 

Recognising the latest inflation outturns, downside risks to domestic growth momentum and near peak of the global monetary tightening cycle, we continue to see a lack of strong reason for Bank Negara Malaysia (BNM) to raise its policy rate further this year. Real interest rates have turned positive for the second straight month. Both core inflation and services inflation decelerated to the lowest level in a year. All these reflect the lagged effects of past interest rate hikes amid persistent labour market slack. Hence, we continue to expect BNM to leave the overnight policy rate unchanged at 3.00% for the remainder of the year.