Monetary indicators expanded at a moderate pace. Broad money supply (M3) rose while narrow money (M1) moderated slightly. Leading loan indicators deteriorated, but may be affected by seasonal factors. On liquidity front, non residents reduced their bond and equity holdings due to global risk-off sentiment. Nevertheless, excess liquidity remained relatively steady. Given the moderate growth in monetary data, we maintain our expectation for BNM to sustain the OPR at 3.25% for the rest of the year.

DATA HIGHLIGHTS

Monetary indicators expanded at a moderate pace in Feb 2018. Broad money supply (M3) rose at a faster pace (+4.9% YoY; Jan: +4.6% YoY) while narrow money supply (M1) moderated slightly (+8.5% YoY; Jan: +8.8% YoY). Growth in loan applications reversed its trend to register a decline of -5.8% YoY (Jan: +25.5% YoY). Likewise, loan approvals also declined by -4.5% YoY (Jan: +26.9% YoY).

Household deposit growth deposit growth was higher at +3.2% YoY (Jan: +2.9% YoY) while business deposits rose at a slower pace (+8.9% YoY; Jan: +9.4% YoY). Meanwhile, foreign deposits continued to decline, at a slower rate (-9.6% YoY; Jan: -9.7% YoY).

Household loan-deposit gap remained small in February. Deposits grew at a faster pace of +3.2% YoY (Jan: +2.9% YoY while household credit also increased at a slightly faster pace (+5.6% YoY ; Jan: +5.2 % YoY).

Outstanding total loan growth charted a faster pace of +4.5% YoY (Jan: +4.2% YoY), driven by higher household loans growth (+5.5% YoY; +5.3% YoY; Dec: +5.1% YoY). Business loans accelerated to +3.1% YoY (Jan: +2.7% YoY) driven by primary agriculture, wholesale and retail trade and construction sectors. Corporate bond issuance, on the other hand, saw a moderation to RM3.2bn (Jan: RM9.5bn) as most corporations front-loaded their issuance towards the end of 2017 to take advantage of the lower interest rate.

Most leading loan indicators for consumer sector deteriorated in February which could be due to seasonal factor. Loans applied for residential properties deteriorated by - 11.8% YoY (Jan: +19.3% YoY) while loans applied for passenger cars also contracted (-14.9% YoY; Jan: +10.2% YoY). Loans approved for residential property slowed sharply to +1.2% YoY (Jan: +20.2% YoY). However, residential loan approvals accelerated by +11.6% YoY (Jan: +2.9% YoY).

Excess liquidity was relatively steady at RM186.1bn (Jan: RM188.9bn). Similarly, other loan liquidity indicators, such as loan-to-fund ratio and loan to deposit ratio showed similar trends.

In the bond space, non-resident reversed its trend to record an outflow of –RM3.8bn (Jan: +RM4.9bn), partly due to global financial market volatility emanating from policy uncertainty in the US economy. Consequently, foreign holdings of MGS inched down to 45.4% (Jan: 45.7%). Likewise, foreigners reduced their equity holdings by –RM1.2bn (Jan: RM3.4bn).

HLIB’s VIEW

The moderate increase in monetary data indicate economic momentum remain firm coming into 2018. Given expectations of more moderate but resilient growth in 2018, we maintain our expectation for BNM to sustain the OPR at 3.25% in 2018.

Source: Hong Leong Investment Bank Research - 2 Apr 2018