● M3 growth eased to a 5-month low in March (5.5%; Feb: 6.8%)

- MoM: slowed to a 5-month low (0.2%; Feb: 0.9%)

- Moderation was primarily attributable to a slowdown in growth of foreign currency deposits (12.9%; Feb: 28.7%) and demand deposits (7.2%; Feb: 8.3%).

● Led by softer growth in net external reserves and private sector spending, which outweighed an expansion in government spending

- Net external reserves (2.3%; Feb: 9.5%): due to a contraction of foreign reserves in the banking system (-2.0%; Feb: 27.1%).

- Claims on the private sector (4.0%; Feb: 4.1%): eased due to softer growth in private sector loans (4.6%; Feb: 4.9%).

- Net claims on government (16.6%; Feb: 13.7%): expanded due to government deposits reaching a 6-month low (1.7%; Feb: 11.0%), suggesting drawdown for spending.

● Loan growth edged lower to 4.6% (Feb: 4.7%)

- By purpose: mainly due to a moderation in loan growth for working capital (5.6%; Feb: 7.1%), which outweighed an expansion in loans for the purchase of non-residential property (2.1%%; Feb:1.5%)and for the purchase of transport vehicles (2.5%; Feb: 2.0%).

- By sector: attributable to softer credit growth in the transport, storage & communication sector (12.0%; Feb: 16.4%), and the electricity, gas & water supply sector (17.6%; Feb: 29.3%), which outweighed a further expansion in credit growth for the household sector (4.9%; Feb: 4.7%) and a smaller contraction in other sectors (-5.3%; Feb: -15.7%).

- MoM: rose to a 4-month high (0.6%; Feb: 0.2%), even as the weighted average lending rate of commercial banks remained unchanged (3.48%; Feb: 3.48%).

● Deposit growth eased to 5.2% YoY (Feb: 6.5%) and 0.3% MoM (Feb: 1.2%)

- Moderation was primarily due to slower growth of foreign currency deposits (9.2%; Feb: 22.9%), a 14-month low, and demand deposits (5.9%; Feb: 8.2%), which eased to its lowest level since February 2020.

● 2022 loan growth forecast maintained at 4.0% - 5.0% (2021: 4.5%)

- Loan growth should find sustained support from Malaysia’s ongoing economic recovery, an expected improvement in domestic demand amid the transition towards the endemic phase, and from a prolonged period of low interest rates. Nonetheless, downside risks remain from the impact of the Russia-Ukraine war and China’s COVID-19 condition, which may weigh on a nascent global economic recovery.

- We continue to expect BNM to retain the policy rate at 1.75% at its upcoming meeting (May 10 – 11), amid a worsening global economic outlook riddled with heightened uncertainty due to the Russia-Ukraine war and China’s zero-COVID-19 policy, and despite the aggressive monetary policy tightening by other major central banks. Following that, we reckon BNM will begin raising rates from 3Q22 and we expect a possible 50 basis points worth of hikes this year.

Source: Kenanga Research - 5 May 2022