RHB Research: Fuel Subsidy Cut Positive For Economy

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KUALA LUMPUR, Nov 24 – The fuel subsidy removal by the government is a positive move and will not have a significant impact on the economy, a research firm said. RHB Research Institute said it believes the decision was right as it can ease the government’s subsidy burden, given that falling crude oil prices will impact oil revenue negatively.

It will also put pressure on the government’s budget deficit. “We do not expect the move to impact the economy negatively, as we believe consumers as well as businesses can adjust and will likely get used to it over time. “The savings from the fuel subsidy can be used for more productive purposes, such as developing and improving the country’s competitiveness,” it said in a note.

The government last Friday announced that the retail prices of RON95 petrol and diesel will be fixed on a managed float system from December 1. It may consider introducing a multi-tiered targeted fuel subsidy mechanism later if oil prices were to rise again, and the move is to help deal with the rising cost of living for the mid- to lower-income groups. RHB Research said the managed float system will likely prevent businesses from simply raising prices each time the fuel subsidy is cut.

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