Most monetary indicators expanded at a slower pace in May. Broad money supply (M3) and narrow money (M1) moderated. Leading loan indicators declined after a brief rebound in the previous month. On liquidity front, non residents reduced their bond and equity holdings further due to global and domestic uncertainties. While we expect some uptick in consumer loan data in the immediate future as consumers take advantage of tax holiday, we maintain our expectation for a more moderate GDP 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 slower pace in May 2018. Broad money supply (M3) rose at a slower pace (+5.6% YoY; Apr: +6.3% YoY), as well as narrow money supply (M1) (+6.7% YoY; Apr: +7.5% YoY). Growth in loan applications deteriorated after rebounding strongly in the previous month (-9.2% YoY; Apr: +20.1% YoY). Similarly, loan approvals slowed sharply to +0.6% YoY (Apr: +21.6% YoY).

Household deposit growth was higher at +4.2% YoY (Apr: +3.9% YoY) while business deposits moderated further to +8.8% YoY (Apr: +11.4% YoY). Meanwhile, foreign deposits continued to decline (-8.9% YoY; Apr: -7.7% YoY).

Household loan-deposit gap remained small in May. Deposits grew at a faster pace of +4.2% YoY (Apr: +3.9% YoY) while household credit was slightly slower at +5.6% YoY (Apr: +5.7% YoY).

Outstanding total loan growth charted a slightly faster pace of +4.9% YoY (Apr: +4.8% YoY), influenced by increase in business loans (+4.0% YoY; Apr: +3.6% YoY) that offset the slight moderation in household loans (+5.6% YoY; Apr: +5.7% YoY). Net issuance of corporate bond was lower at RM3.0bn (Apr: RM7.1bn) due to lower gross issuance of corporate bond (RM6.9bn; Apr: RM11.8bn). According to MARC, bonds were mostly issued in the financial services sector (Danainfra and Cagamas),

Most leading loan indicators for consumer sector deteriorated in May. Loans applied for residential properties declined by -15.4% YoY (Apr: +6.4% YoY) while loans applied for passenger cars also contracted (-4.6% YoY; Apr: +4.9% YoY). Loans approved for residential property declined by -13.0% YoY (Apr: +7.1% YoY). Similarly, passenger car loan approvals also fell (-7.5% YoY; Apr: +7.9% YoY).

Excess liquidity was lower at RM177.0bn (Apr: RM182.2bn). 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 recorded an outflow of –RM11.1bn (Apr: -RM3.9bn) due to lower risk appetite arising from expectations of faster interest rate increase by the FOMC and trade tensions. On the domestic front, policy uncertainty after the surprise victory of PH coalition on 9th May 2018 also led to cautious stance among investors. On the equity front, non-resident flows showed the largest decline since Aug 2013 (May 18: -RM5.6bn; Aug 13: -RM6.8bn).

HLIB’s VIEW

While we expect some uptick in consumer loan data in the immediate future as consumers take advantage of tax holiday, we maintain our expectation for a more moderate GDP in 2018 compared to 2017. Inflation is also anticipated to be more modest. Hence, we maintain our OPR expectation at 3.25% for 2018.

Source: Hong Leong Investment Bank Research - 2 Jul 2018