● Broad money (M3) growth slowed to 3.5% YoY in July (Jun: 3.6%)

− MoM: declined (-0.3%; Jun: 0.4%) at the fastest pace since April 2021.

− Growth was contributed by an expansion in fixed deposits (8.1%; Jun: 8.0%) but was partially weighed down by a deeper contraction in demand deposits (-1.9%; Jun: -1.2%), which negated -0.4 ppts of overall M3 growth.

● Slower expansion in the M3 due to a larger deficit in other influences, but partially mitigated by the growth in the claims on the private sector

− Other influences (15.9%; Jun: 9.0%): deficit expanded at the fastest pace since May 2017, dragging the overall M3 growth by -5.6 ppts.

− Net claims in the private sector (5.4%; Jun: 3.6%): accelerated to a 52-month high due to a higher expansion in securities (11.0%; Jun: 7.3%) and loans (4.6%; Jun: 3.0%).

● Loan growth slowed to a 21-month low in July (4.2% YoY; Jun: 4.4%)

− By purpose: mainly attributable to a slowdown in working capital (1.5%; Jun: 1.8%) and a decline in other purposes (-1.8%; Jun: 0.7%). Combined, both dragged overall loan growth by a total -0.2 ppts. This was further weighed down by continued weakness in the purchase of securities (Jul: -8.2%; Jun: -7.5%).

− By sector: slower credit growth was mainly due to a sharp moderation in the finance & insurance (14.1%; Jun: 18.2%) as well as motor vehicles (2.7%; Jun: 4.5%), reducing their combined contribution to overall loan growth to 0.8 ppt from 1.1 ppts in June.

− MoM: Growth momentum relatively unchanged (0.2%; Jun: 0.2%).

● Deposit in the banking system moderated further (5.3% YoY; Jun: 5.9%) to a 16-month low, with MoM growth fell sharply (-0.5%; Jun: 0.0%), lowest since November 2022

− Slower growth was mainly attributable to a continued decline in savings (-7.6%; Jun: -8.0%) and demand (-2.6%; Jun: -2.3%) deposits, which together dragged overall deposit growth by -1.4 ppts.

● 2023 loan growth forecast is maintained at 4.0% - 4.5% (2022: 5.7%) amid downside risk to the growth outlook

− Our loan growth forecast remains unchanged as we expect further improvement in consumer and business confidence towards the end of the year. This is largely because we expect domestic demand to support growth outlook backed by a steady labour market conditions underpinned by further expansion in the services sector driven by higher tourist arrivals.

− On the monetary policy outlook, we expect BNM to maintain its overnight policy rate (OPR) at 3.00% at its next Monetary Policy Committee (MPC) meeting slated on September 7th as we believe the central bank has reached its policy normalisation cycle target and is expected to keep the policy rate steady until 2024. This is also premise on the expectation that the central bank would likely strike a balance between price stability and supporting economic growth amid the heightened risk of global economic slowdown brought by China's fragile economic recovery and the lag effect of higher interest rate environment led by the US Fed.

− We have also revised our GDP growth projection for 2023 to 3.5% - 4.0% from the previous forecast of 4.7% (2022: 8.7%) following a slower than expected 2Q23 GDP growth (2.9%; 1Q: 5.6%).

Source: Kenanga Research - 1 Sept 2023