● M3 growth roseto a 13-month highin June(5.6% YoY; May: 4.7%),on the residual impact of an aggressively stimulative monetary policy since March and sizeable fiscal rescue package

− MoM: inched up marginally (0.7%; May: 0.6%).

− Attributable to a double-digit growth in M1 (13.1%), and rise in narrow quasi-money (4.0%), outpacing sharper drop in deposits placed with other banking institutions (-55.0%).

● Higher growth in public spending outweighed softer growth in external reserves

− Net claims on government (38.7%; May: 30.8%): rose to a 14- month high driven by higher credits extended to the government (19.3%; May: 16.0%), mainly to finance the fiscal stimulus.

− Net external reserves (2.8%; May: 3.9%): growth moderated on lower net foreign reserves by the BNM (4.2%; May: 6.9%).

● Loan growth expanded to a 12-month high (4.1%; May: 3.9%)

− By purpose: attributable to higher growth in loans for the purchase of residential (6.9%; May: 6.6%) thanks to declining lending rates. In addition, loans for working capital rose to a 16- month high (5.0%; May: 4.6%) as businesses seeking financial assistance to weather the adverse effect of the COVID-19 pandemic.

− By sector: led by expansion in the household sector (3.5%; May: 3.2%) on the impact of economic reopening followed by a growth acceleration on credit growth in education, health, and others (8.9%; May: 0.1%). These have offset the slowdown in the construction sector (-1.7%; May: 0.8%) as well as finance, insurance, and business activities (7.8%; May 9.5%).

− MoM: expanded by 0.6% (May: 0.2%), a 6-month high as the weighted average lending rate of commercial banks decreased to a record low (3.89%; May: 4.00%).

● Deposit growth accelerated to a 10-month high (4.4%; May: 2.8%)

− Attributable to a surge in growth of demand deposits (14.8%; May: 11.6%) and saving deposits (21.0%; May: 18.0%).

● 2020 loan growth forecast maintained at 1.0%-2.0% (2019: 3.9%) on impending second wave impact of COVID-19

− The fear of an eventual resurgence of COVID-19 infections is expected to hamper a recovery in the demand channel as the impact would weigh on household and business confidence, thus hindering loan growth and economic recovery.

− Nevertheless, we believeBNM has ample room to lean towards further easing, with a high probability of slashing the OPR by another 25bps at the next MPC meeting in September to reinforce the fiscal stimulus.

Source: Kenanga Research - 3 Aug 2020