● M3 growth decreased to a 33-month low (3.9%; Aug: 4.2%)…

- MoM: 0.4% (Aug: -0.2%).

- Softer growth in narrow quasi-money and deposits placed with other banking institutions outweighed a 16-month high expansion of M1 (4.8%; Aug: 3.8%).

● …led by easing net external reserves and public spending

- Net external reserves (-3.6%; Aug: 0.4%): fell into a contraction, steered by those of the banking system (-21.5%; Aug: -4.0%), reflecting less liquidation of foreign assets.

- Net claims on government (12.7%; Aug: 19.9%): eased on lower credits extended to the government (19.3%; Aug: 19.5%).

- Claims on private sector (4.5%; Aug: 3.7%): first uptrend after 3 months, mainly in the form of loans (4.1%; Aug: 3.5%).

● Loan growth edged down marginally (3.8%; Aug: 3.9%) as banks withdrew credit from the economy

- By purpose: slowdown led by loans extended for working capital (1.6%; Aug: 2.1%) and purchase of fixed assets (17.1%; Aug: 18.1%).

- By sector: weaker credit growth in the transport, storage & communication sector (3.2%; Aug: -6.5%) offset a rebound in the electricity, gas & water supply sector (3.4; Aug: -3.9%).

- MoM: edged up by 0.5% amid lower average lending rate of commercial banks (4.76; Aug: 4.82%).

● Deposit growth extended its downtrend for seven successive months (4.2%; Aug: 4.6%)

- Weighed by a substantially lower foreign currency deposits growth (2.6%; Aug: 11.7%).

● Forecast of a slowdown in 2019 loan growth remains intact (4.2%; 2018: 7.7%)

- Cautious outlook on growth: though there have been some positive developments surrounding the US-China trade feud, the impact of existing tariffs would still weigh on global trade and growth in the immediate term.

- However, with the OPR already slashed once in May and clear commitment by the government to stimulate the economy as evidenced through its 2020 budget measures, we foresee the BNM may want to save its bullet for a stormier day, maintaining the OPR at 3.00% for the rest of the year.

Source: Kenanga Research - 1 Nov 2019