● M3 growth edged marginally lower to a 6-month low in November (5.2%; Oct: 5.3%)

- MoM: muted growth following last month’s contraction (0.0%; Oct: -0.1%).

- The moderation was led by a persistent slowdown in narrow quasi-money growth (1.4%; Oct: 1.7%), outpacing the solid increase in demand deposits (21.0%; Oct: 19.5%) amid a bullish equity market.

● Softer growth in the private sector outweighed higher growth in public spending

- Claims on the private sector (4.0%; Oct: 4.6%): eased to an eight-month low, mainly due to a slowdown in private sector loans (3.6%; Oct: 4.1%).

- Net claims on government (37.7%; Oct: 33.7%): grew at a faster pace for the first time in four months on an increase in credits extended to the government (21.6%; Oct: 20.7%).

● Loan growth softened to 3.8% (Oct: 4.3%), a 10-month low

- By purpose: due to a decrease in loan growth for working capital (0.8%; Oct: 2.2%) and purchase of nonresidential property (2.0%; Oct: 2.4%), as business sentiment was hampered by the tightened COVID-19 curbing measures throughout November.

- By sector: attributable to the steepest contraction in 27 months in credit growth for the transport, storage & communication sector (-5.2%; Oct: 2.0%) and a five-month low loan growth for the real estate sector (1.4%; Oct: 3.7%).

- MoM: fell for the first time in 10 months (-0.1%; Oct: 0.1%) amid higher weighted average lending rate of commercial banks (3.56%; Oct: 3.53%).

● Deposit growth sustained at 4.4% (Oct: 4.4%)

- A softening decline in fixed deposits (-3.4%; Oct: -3.9%) and rising demand deposits (21.7%; Oct: 20.6%) were equally offset by lower growth in repurchase agreements (21.9%; Oct: 53.4%) and other deposits (1.3%; Oct: 3.6%).

● 2020 loan growth will likely register within our forecast range of 2.5% - 3.5% (2019: 3.9%) and is expected to rise between 3.0% - 4.0% in 2021

- A forecasted recovery in 2021 GDP growth ( 6.1%; 2020F: -5.1%) along with sustained low interest rates and a wider vaccine rollout particularly in the 2H21 will likely support modest loan growth this year. Nonetheless, downside risks remain arising from the surge in COVID-19 cases and concerns over virus mutations globally.

- On the back of positive vaccine sentiment and improving economic activities following the lifting of interstate travel ban on December 7th , we see a higher probability that BNM will keep the overnight policy rate unchanged at 1.75% in the near term.

Source: Kenanga Research - 4 Jan 2021