Malaysia diesel subsidy cut seen as key move

The Malaysian government's decision to cut the decades-old diesel subsidy program is "a significant milestone" for the administration of Prime Minister Anwar Ibrahim, as such a move is part of long-term reforms to sustain growth in Southeast Asia's third-largest economy, analysts say.

While increased fuel prices are expected to boost inflationary pressures, experts expect headline inflation this year to be within the government's forecast of 2 to 3.5 percent.

The cuts in diesel subsidies kicked in on June 10, with retail prices of the fuel rising by about 55 percent to 3.35 ringgit ($0.71) a liter. The eastern Malaysian states of Sabah and Sarawak are exempted from the subsidy cuts.