● M3 growth eased to 6.6% in June (May: 6.9%)

- MoM: contracted for the first time in 8-months (-0.1%; May: 0.5%)

- Moderation was mainly attributable to lower growth in savings deposits (5.3%; May: 9.6%), which outpaced an increase in demand deposits (10.2%; May: 8.4%).

● Slower growth in government spending and a deeper contraction in net other influences outweighed higher growth in private sector spending and net external reserves

- Net claims on government (22.8%; May: 24.9%): moderated due to lower credits extended to the government (13.2%; May: 14.4%).

- Claims on the private sector (4.8%; May: 4.4%):increased on greater growth in private sector loans (5.7%; May: 5.0%).

- Net external reserves (0.1%; May: -0.5%): returned to growth following a smaller contraction in foreign reserves held by BNM (- 0.4%; May: -1.5%).

● Loan growth increased to 5.6% in June, a 39-month high (May: 5.0%)

- By purpose: driven by higher loan growth for the purchase of transport vehicles (4.7%; May: 2.7%), the purchase of residential property (7.3%; May: 6.8%), for working capital (7.4%; May: 6.7%), and for credit cards (12.6%; May: 5.8%).

- By sector: primarily led by a further expansion in credit growth for the household sector (5.9%; May: 5.0%), which reached its highest level in 13-months, as well as higher growth in the wholesale, retail trade, hotels & restaurant sector (13.5%; May: 12.1%), which outweighed a deeper credit contraction in the mining & quarrying sector (-19.2%; May: -9.1%).

- MoM: increased to 0.7% (May: 0.3%), on a higher weighted average lending rate of commercial banks (3.79%;May: 3.68%).

● Deposit growth rose to 6.6% YoY (May: 6.1%), increasing by 0.8% MoM (May: 0.2%)

- Expansion was driven by greater growth of demand deposits (10.7%; May: 7.3%) and fixed deposits (3.0%; May: 2.3%), which outpaced a slowdown in saving deposits (5.3%; May: 9.6%).

● 2022 loan growth forecast adjusted to 4.5% - 5.0% from 4.0% - 5.0% previously (2021: 4.5%)

- We still expect loan growth to remain solid amid a sustained recovery in the Malaysian economy, driven by strong momentum in domestic demand. Nonetheless, downside risks remain from rising inflationary pressures, BNM’s monetary policy tightening, and growing concerns of a global recession amid aggressive policy tightening by major central banks.

- We expect BNM to maintain its hawkish stance and raise rates by 25 bps at each of its two remaining monetary policy meetings this year, bringing the year-end rate to 2.75%. This is based on a GDP growth forecast of 5.0–5.5% in 2022 (2021: 3.1%), particularly led by strong domestic demand, as well as to address mounting domestic inflationary pressures.

Source: Kenanga Research - 1 Aug 2022