Monetary indicators were mixed in March. Broad money supply (M3) rose while narrow money (M1) moderated slightly. Leading loan indicators remained weak. On liquidity front, non-residents increased their bond holdings due to higher global oil prices and a dovish FOMC in March. Given the moderate monetary data and weak leading loan indicators, 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 faster pace in March 2018. Broad money supply (M3) rose at a faster pace (+5.9% YoY; Feb: +4.9% YoY) while narrow money supply (M1) moderated (+7.9% YoY; Feb: +8.5% YoY). Growth in loan applications was flat after declining in previous month (Feb: -5.8% YoY). Loan approvals declined further by -7.6% YoY (Feb: -4.5% YoY).

Household deposit growth was slightly higher at 3.3% YoY Feb: +3.2% YoY while business deposits accelerated to +12.4% YoY (Feb: +8.9% YoY). Meanwhile, foreign deposits continued to decline, at a slower rate (-8.3% YoY; Feb: -9.6% YoY).

Household loan-deposit gap remained small in March. Deposits grew at a slightly faster pace of +3.3% YoY (Feb: +3.2% YoY) while household credit remained steady at 5.6% YoY.

Outstanding total loan growth charted a slightly slower pace of +4.4% YoY (Feb: +4.5% YoY), influenced by lower business loans growth (+2.9% YoY; Feb: +3.1% YoY) while household loans remain steady +5.6% YoY. Corporate bond issuance, saw an acceleration to RM10.2bn (Feb: RM3.2bn) attributed to the increase in issuance in the transportation, financial services and construction sectors.

Most leading loan indicators for consumer sector remained weak in March. Loans applied for residential properties deteriorated by -11.1% YoY (Feb: -11.8% YoY) while loans applied for passenger cars also contracted (-10.2% YoY; Feb: -14.9% YoY). Loans approved for residential property turned around to decline by -8.1% YoY (Feb: +1.2% YoY), similar to passenger car loan approvals (-9.1% YoY ; Feb: +11.6% YoY)

Excess liquidity was higher RM198.4bn (Feb: RM186.1bn), which could be attributed to the increase in long and short-term foreign investment into the country. Similarly, other loan liquidity indicators, such as loan-to-fund ratio and loan to deposit ratio showed similar improvement.

In the bond space, non-resident reversed its trend to record a moderate inflow of RM2.2bn (Feb: -RM3.8bn) due to firmer global oil prices and dovish FOMC meeting. Consequently, foreign holdings of MGS inched up to 45.5% (Feb: 45.4%). Likewise, non-resident flows of equity also showed a smaller decline (-RM0.1bn; Feb: -RM1.2bn). Nevertheless, the share of foreign holding rose to a higher rate of 24.2% of total shareholding (Feb: 23.6%), possibly due to a larger contraction in total market capitalisation.

HLIB’s VIEW

The quarterly monetary data suggest growth is expected to moderate slightly in 1Q 2018. The weak leading loan indicators suggest growth and inflation is expected to be more moderate in 2018 compared to 2017. We maintain our expectation for BNM to retain the OPR at 3.25% for 2018.

Source: Hong Leong Investment Bank Research - 2 May 2018