KUALA LUMPUR, July 18 (Xinhua) -- Malaysia's inflation rate dropped to below 1 percent in June, the first time within 40 months, after the country's new government zero rated the goods and services tax (GST).

Malaysian statistics department's data showed Wednesday that the consumer price index (CPI) stood at 0.8 percent compared to 1.8 percent in May.

The June CPI was sharply below market expectation of 1.3 percent.

The zero-rated GST starting from June 1, discounted price by retailers in conjunction with festivals and the related implementation of price control scheme for selected items were significant events that have occurred throughout June 2018.

"These events had indirectly affected the prices of goods and services in the market," said the department in a statement.

On a monthly basis, CPI decreased 1.2 percent as compared to May, due to the declines in all main groups.

The core inflation rose 0.1 percent in June as compared to the same month of the previous year. For the first six months, the CPI registered an increase of 1.6 percent over the same period last year.

"The June inflation rate tumbled to the lowest since March 2015 mainly attributed to the three months tax holiday period which kicked off in June," said MIDF Research in a note Wednesday.

The research house anticipates Malaysia's inflation to continue to taper down in upcoming months due to higher base effects and other significant events such as zero-rated GST, tax holiday period until the Sales and Service Tax (SST) implementation in September and stable retail fuel price which will reduce business cost.

"We expect inflationary pressure mainly from fuel-related items to calm, consistent with gradual rise in global commodity prices on top of pass-through effect from a strengthening ringgit, re-subsidization of domestic fuel price and withdrawal of GST," it added.

As inflationary pressure remains benign, it anticipates Malaysian Central Bank to maintain its current monetary policy with no more rate hikes for the rest of 2018.

ANZ research believed that the moderation in inflation is "transitory" and will reverse when the SST is reinstated later in the year.

"Malaysia's CPI inflation has averaged 1.6 percent year on year over the first half and will likely decline further before rebounding towards the end of the year," it said.

Given low inflation and uncertainty over the global trade outlook, the research house expects Malaysian Central Bank to maintain the "neutral" tone it assumed in its recent monetary policy statement and remain on hold for the rest of the year.

"The central bank will stay accommodative, but is unlikely to take a dovish stance and jeopardize the relative resilience of the Ringgit," it added.