● M3 growth increased in March (6.1%; Feb: 5.1%), reaching its highest level in six months

- MoM: increased by 1.4% (Feb: 0.6%), a 15-month high.

- Growth was attributed to a continued expansion in narrow quasimoney (2.3%; Feb: 0.7%), which outpaced a moderation in M1 growth (19.0%; Feb: 21.8%).

● Pick up in private sector spending and capital flow from abroad outweighed a moderation in public spending

- Net external reserves (6.0%; Feb: 3.2%): rose to a 7-month high, driven by a surge of foreign reserves in the banking system (24.7%; Feb: 1.9%).

- Claims on the private sector (3.9%; Feb: 3.4%): edged higheron an increase in both private sector loans (3.7%; Feb: 3.4%) andholdings of securities (4.7%; Feb: 3.7%) by the banking system.

- Net claims on government (17.8%; Feb: 24.7%):moderated to a13- month low, due to a continued slowdown in credits extended to the government (15.7%; Feb:18.6).

● Loan growth edged higher to 3.9% (Feb: 3.7%), a five-month high.

- By purpose: largely due to an increase in loans for the purchase of securities (5.7%; Feb: 1.9%), which outweighed a further decline in loans for other purposes (-5.9%; Feb: -2.3%).

- By sector: driven mainly by an increase in credit growth for the household sector (5.7%; Feb: 5.1%), outpacing slowingcredit growth in the real estate sector (0.0%; Feb: 1.1%) and the education, health & others sector (22.9%; Feb: 25.7%).

- MoM: accelerated to a 15-month high (0.7%; Feb: 0.1%) amid a slightly lower weighted average lending rate of commercial banks (3.47%; Feb: 3.49%).

● Deposit growth increased to 5.9% YoY (Jan: 5.2%), a 2-year high; and 1.5% MoM (RM32.0b), a 35-month high.

- A softer decline in fixed deposits (-3.0%; Feb: -5.0%), along with a rise in foreign currency deposits (15.7%; Feb: 12.3%) and other deposits accepted (7.4%; Feb: 2.4%), outweighed plummeting repurchase agreements (-6.1%; Feb: 22.7%) and a moderation in demand deposits (19.6%; Feb: 23.6%).

● 2021 loan growth forecast range maintained at 3.5% - 4.5% (2020: 3.4%; 2019: 3.9%)

- Loan growth to be supported by an expected improvement in consumer and business confidence, and the potential release of pent-up demand in 2H21. This comes amid a better recovery outlook, as we upgrade our 2021 GDP growth forecast to 6.5% (previously: 4.5%; 2020: -5.6%).Nevertheless,downside risks remainin the face ofelevated local COVID-19 cases, with any return of lockdown restrictions likely to weigh on recovery outlook and loan growth.

- We maintain that Bank Negara Malaysia will keep the overnight policy rate unchanged at 1.75% for the remainder of the year, amid the relaxation of COVID-19 restrictions, Malaysia’s vaccinationcampaign,and additionalfiscalstimulus packages.

Source: Kenanga Research - 3 May 2021