OVERVIEW

● February broad money (M3) grew by 6.0% YoY (Jan: 6.6%), its second month of growth moderation after it peaked in December at 8.0% YoY. On a MoM basis, it fell by 0.1% (Jan: -0.5%). The growth slowdown was underpinned by a contraction in net foreign assets (-1.8% YoY; Jan: -3.1%), reflecting a sustain capital outflow while the growth of claims on private sector moderated for the third straight months (5.9% YoY, Jan: 6.2%). Collectively, it has more than outweighed the gain of net claims on government (48.6% YoY, Jan: 57.4%). In terms of percentage point (ppt) contribution, M3 growth has been mainly dragged by net other influences (-2.8 ppt, Jan: -2.6 ppt) and net foreign assets (-0.5 ppt, Jan: -0.9 ppt) while claims on the private sector remains the key contributor to M3 growth (5.9 ppt, Jan: 6.2 ppt), followed by net claims on government (3.4 ppt, Jan: 3.9 ppt).

● Narrow money (M1) growth slowed sharply to 0.5% YoY (Jan: 1.6%), registering a 29-month low. The slower growth was attributable to a weak rebound in demand deposits and sharp moderation in currency circulation at 0.2% and 1.6% YoY respectively (Jan: -0.4% and 8.5% respectively). While the festive February month is partly to be blamed, it could signal that the economy is slowing. On a MoM basis, M1 fell 1.4% (Jan: 0.1%).

● Loan growth continued to slow in February, growing by 5.0% YoY (Jan: 5.5%), mainly due to a slowdown in loans extended for the purpose of construction (2.8% YoY; Jan: 7.9%), credit card (2.0% YoY; Jan: 2.6%) and working capital (5.2% YoY, Jan: 5.5%), while loans for the purchase of transport vehicles continue to fall by 0.7% YoY (Jan: -0.4%). Collectively, all these four loans contributed 1.3 ppt to the overall loan growth, a shade lower than 1.5 ppt in February. Meanwhile, loan for the purchase of residential property slowed to 7.1% YoY (Jan: 7.4%) but remain a key contributor to overall loan growth at 2.4 ppt. On a sectoral basis, real estate loans dropped 1.1% (Jan: +0.7%), while that of mining & quarrying fell sharply 21.3% (Jan: 0.1%). Meanwhile, growth of household loans slowed to 5.2% YoY (Jan: 5.5%), a 14- month low, indirectly suggest an improvement in the outstanding of household debt and quality of household lending. On a MoM basis, loan growth fell by 0.2% (Jan: 0.3%), amid higher approval rate of 46.9% (Jan: 43.3%). Meanwhile, deposit growth edged up to 6.3% YoY (Jan: 6.2%) on the back of higher negotiable instruments of deposit (NID) and foreign currency deposits (FCD) at 10.1% and 9.6% YoY respectively (Jan: 4.6% and 7.3% respectively).

● In view of an expected slowdown in the economy this year, both externally and domestically, loan growth is projected to ease further to 4.2% in 2019 (2018: 5.6%). Nonetheless, as real price and capital market stability as well as sustainable economic growth remains BNM’s key monetary policy aim, we believe there is ample room for BNM to cut the overnight policy rate if it sees the economy would further deteriorate. For now, we expect BNM to keep the OPR on hold.

Source: Kenanga Research - 1 Apr 2019