Most monetary indicators expanded at a faster pace in April. Broad money supply (M3) rose while narrow money (M1) moderated slightly. Leading loan indicators rebounded while loan growth rose at faster pace. On liquidity front, non-residents reduced their bond holdings due to risk aversion in international financial market and pre-GE14 uncertainty. Notwithstanding the increase in monetary and loan data in April, we still expect overall GDP to be more moderate in 2018 compared to 2017. Hence, we maintain our forecast for OPR to remain at 3.25% in 2018.

DATA HIGHLIGHTS

Monetary indicators expanded at a faster pace in April 2018. Broad money supply (M3) rose at a faster pace (+6.3% YoY; Mar: +5.9% YoY) while narrow money supply (M1) moderated (+7.5% YoY; Mar: +7.9% YoY). Growth in loan applications rebounded strongly (+20.1% YoY; Mar: 0% YoY). Similarly, loan approvals grew at a robust rate of +21.6% YoY (Mar: -7.6% YoY).

Household deposit growth was higher at +3.9% YoY (Mar: +3.3% YoY) while business deposits moderated slightly to +11.4% YoY (Mar: +12.4% YoY). Meanwhile, foreign deposits continued to decline, albeit at a slower rate (-7.7% YoY; Mar: -8.3% YoY).

Household loan-deposit gap remained small in April. Deposits grew at a slightly faster pace of +3.9% YoY (Mar: +3.3% YoY) while household credit remained steady at +5.7% YoY (Mar: +5.6% YoY).

Outstanding total loan growth charted a faster pace of +4.8% YoY (Mar: +4.4% YoY), influenced by higher business loans growth (+3.6% YoY; Mar: +2.9% YoY) while household loans remain steady +5.7% YoY. Corporate bond issuance saw a slight moderation to RM7.1bn (Mar: RM10.2bn). Bonds were mostly issued in the utilities and finance, insurance, real estate sectors.

Most leading loan indicators for consumer sector improved in April. Loans applied for residential properties grew by +6.4% YoY (Mar: -11.1% YoY) while loans applied for passenger cars also increased (+4.9% YoY; Mar: -10.2% YoY). Loans approved for residential property turned around to increase by +7.1% YoY after expiring a temporary decline of -8.1% YoY in the previous month. Similarly, passenger car loan approvals also rose (+7.9% YoY; Mar: -9.1% YoY).

Excess liquidity was lower RM182.2bn (Mar: RM198.5bn), which could be attributed to the reduction in 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 trends.

In the bond space, non-resident reversed its trend to record an outflow of –RM3.9bn (+RM2.2bn) due to cautious investor sentiment arising from higher US Treasury yields and domestic political uncertainty ahead of Malaysia’s General Election. Consequently, foreign holdings of MGS inched down to 44.3% (Mar: 45.5%). On the other hand, non-resident flows of equity showed an increase (+RM1.5bn; -RM0.1bn). Foreign holding was slightly lower at 24.1% (Mar: 24.2% of total shareholding).

HLIB’s VIEW

While monetary and loan data showed an improvement in April, we still expect overall GDP to moderate in 2018 compared to 2017. Inflation is also anticipated to be modest. Hence, we maintain our OPR expectation at 3.25% for 2018.

Source: Hong Leong Investment Bank Research - 1 Jun 2018