● M3 growth inched higher in July (3.8%; Jun: 3.4%), a 2-month high

- MoM: increased by a 4-month high (0.9%; Jun: 0.2%).

- The slight increase was steered by greater growth in narrow quasimoney (1.5%; Jun: 0.6%), despite a continued slowdown in M1 growth (10.8%; Jun: 12.2%).

● Greater growth in net external reserves and a decline in net other influences, outweighed softer growth in private sector and public spending

- Net external reserves (2.1%; Jun: 1.5%): led by continued growth in central bank reserves (3.5%; Jun: 4.2%) and a smaller decrease of foreign reserves in the banking system (-3.5%; Jun: -9.8%).

- Claims on the private sector (3.2%; May: 3.5%): moderated for the fourth straight month, due to a persistent slowdown in private sector loans (3.0%; Jun:3.3%)amid nationwide lockdown measures.

- Net claims on government (1.9%; Jun: 4.7%): softer growth following last month’s rebound, due to a decrease in credits extended to the government (4.9%; Jun: 9.0%) and lower government deposits (14.4%; Jun: 22.5%).

● Loan growth continued to moderate, reaching a record low of 3.1% (Jun: 3.4%)

- By purpose: driven by a persistent slowdown in loans for the purchase of transport vehicles (3.4%; Jun: 6.5%), residential property (6.4%; Jun: 6.8%), and a decline in loans for the purchase of non-residential property (-0.1%; Jun: 0.9%), which outweighed rising loan growth for working capital (3.1%; Jun: 1.7%).

- By sector: mainly attributable to lower credit growth for the household sector (4.2%; Jun: 5.2%), outpacing an increase in loans for the manufacturing sector (5.6%; Jun: 3.1%), which reached a 12-month high.

- MoM: remained at 0.1% (Jun: 0.1%), amid a lower weighted average lending rate of commercial banks (3.43%; Jun:3.47%).

● Deposit growth edged higher to 4.0% YoY (Jun: 3.9%) and rose by 0.5% MoM (Jun: 0.3%)

- Led by a sustained rise in foreign currency deposits (22.1%; Jun: 14.5%), a 5-year high, and a softer fall in fixed deposits (- 2.0%; Jun: -3.2%), which outweighed lower demand deposits (11.0%; Jun: 11.9%) and savings deposits (16.6%; Jun: 18.1%).

● 2021 loan growth forecast range revised down to 3.0% - 4.0% from 3.5% - 4.5% (2020: 3.4%)

- This is to account for the impact of the extended lockdown measures on consumer and business sentiment. However, this will likely ease over 2H21 as restrictions are continually relaxed and the economy fully reopens by 4Q21. Additionally, the sustained low interest rate environment may continue to encourage demand for loans.

- We continue to expect Bank Negara Malaysia (BNM) to maintain the overnight policy rate at 1.75% for the rest of the year, despite the elevated level of domestic COVID-19 cases, asMalaysia’s recovery outlook remains intact. However, if the COVID- 19 situation worsens and delays economic reopening, we believe BNM has enough space to lower the OPR as needed

Source: Kenanga Research - 1 Sept 2021