The impact of macroeconomic variables on crude palm oil price in Malaysia

Abstract

Crude Palm Oil (CPO) has been a cornerstone of Malaysia's economy for decades, serving asone of the nation's most valuable export commodities. The persistent volatility of CPO pricesreflects the inherent uncertainty of commodity markets, necessitating informed decisionmakingand robust risk management strategies. This dynamic environment requires continuedresearch to unravel the complex relationships between crude palm oil prices and key economicvariables, ensuring Malaysia’s palm oil industry remains competitive and resilient in a rapidlychanging global market. Thus, this study aims to examine the impact of macroeconomicvariables on crude palm oil price in Malaysia. The study employs structural vectorautoregressive (SVAR) model, spanning the period from 1971 to 2023. The findings suggestthat real GDP positively influences CPO prices, though the response was statisticallyinsignificant. Government expenditure showed a delayed positive impact on CPO prices. TheCPI's negative and significant relationship with CPO prices underscores the cost-push effectsof inflation. Similarly, the delayed negative impact of interest rates on CPO prices emphasizesthe need for careful monetary policy adjustments to support agricultural investment andproduction.