OVERVIEW

● January broad money (M3) grew by 7.5% YoY (Dec: 8.0%), marking its first moderation in growth after three consecutive months. This was underpinned by a contraction in net foreign assets (-3.1%; Dec: 0.9%), reflecting bigger capital outflows, and smaller growth of claims on private sector (6.3%, Dec: 6.4%) and net other influences (4.8%; Dec: 5.7%). Collectively, these have more than outweighed faster expansion of net claims on government (57.3%, Dec: 46.7%). In terms of percentage point (ppt) contribution, broad money growth has been dragged by net other influences (-1.8 ppt) and net foreign assets (-0.9 ppt), while claims on the private sector remained the key contributor (6.3 ppt), followed by net claims on government (3.9 ppt). On a MoM basis, M3 growth eased to 0.3% (Dec: 0.8%).

● Narrow money (M1) growth edged higher to 1.6% YoY (Dec: 1.1%), after registering a 27-month low growth in the preceding month. M1 growth picked up as decline in demand deposits (-0.4%; Dec: 0.8%) was offset by a surge in currency in circulation (8.5%; Dec: 2.1%). This was in line with expectation of increased transactions amid the new year festivities and improved capital market performance during the month. On a MoM basis, M1 growth deteriorated to 0.1% (Dec: 2.2%).

● Loan growth retained a downtrend in December, with a marginally softer expansion of 5.5% YoY (Dec: 5.6%), mainly driven by slowdown in loans extended for construction (7.9%; Dec: 9.0) and the purchase of securities (6.7%; Dec: 7.1%). Meanwhile, loans for the purchase of consumer durables, transport vehicles and passenger cars continued to decelerate, indicating looming pessimism among consumers with regards to income prospect, against the backdrop of economic growth moderation. On a sectoral basis, electricity, gas and water supply (8.5%; Dec: 12.1%), as well as construction (10.5%; Dec: 13.8%) led the slowdown observed in January. On a MoM basis, loan growth edged lower to 0.3% (Dec: 0.6%), on the back of an increase in weighted average lending rate of commercial banks to 5.04% (Dec: 5.02%). On a similar trend, deposit growth decreased to 6.1%, after briefly marking an improved growth of 7.5% in the previous month. The moderation was predominantly triggered by tapering growth of repurchase agreements (39.3%; Dec: 79.1%) and foreign currency deposits (7.3%; Dec: 10.0%), as well as falling demand deposits (-1.7%; Dec: -0.3%).

● Banks’ liquidity remained healthy, with the liquidity coverage ratio edged up to 144.3% (Dec: 143.2%), due to larger drop in net cash outflow, as compared to stock of high quality liquid assets in the banking system. In line with increasing signs of growth momentum slowdown, both externally and domestically, loan growth is envisaged to ease further to 4.2% in 2019. In ensuring capital market stability, ample liquidity and to remain supportive of growth, we believe BNM will hold the OPR steady at 3.25% this year with room to cut if the economic environment deteriorates.

Source: Kenanga Research - 1 Mar 2019