OVERVIEW

M3 growth dialled back a touch. Broad money supply (M3) grew by a slightly slower 5.0% (Aug: 5.3%) though the expansion in M3 remains elevated historically. M3 growth was driven by stable financing to the private sector and rising net foreign flows.

M1 growth hits a 41-month high. Growth of narrow money aggregate, as defined by M1, zoomed to 11.1% (Aug: 10.9%), expanding at its fastest pace since April 2014.

Loans and deposit growth more muted. Loan and deposit growth stood at a slightly lower 5.2% and 4.5% respectively (Aug: 5.8% and 5.0% respectively). However, growth in these banking aggregates remains healthy overall.

Stable monetary conditions. Stronger growth in monetary aggregates appears to be consistent with the general uptick in economic activity while inflation remains contained overall. Combined with steady interest rates, September’s numbers point to sound monetary conditions with ample support for growth.

OPR to stay at 3.00% for 2017; some tightening pressure for 2018. We expect the OPR to be retained at 3.00% during the coming MPC meeting in November. However, we see some room for a mild monetary tightening moving in 2018, assuming signs of a stronger manufacturing sector as well as domestic demand, as per the Ministry of Finance’s 2018 Budget projection.

Source: Kenanga Research - 1 Nov 2017