• Broad money (M3) growth moderated slightly (5.7% YoY; Jan: 6.0%)
  
  − Growth was supported by higher fixed deposits (5.7%; Jan: 4.9%),followed by currency in circulation (5.3%; Jan: 1.1%) and savings deposits (2.5%; Jan: 0.3%). Combined, the three components contributed 3.0 ppts (Jan: 2.2 ppts) to overall M3 growth. However, a sharp slowdown in foreign currency deposits (3.4%; Jan: 12.4%) capped the overall growth, with its contribution falling to 0.4 ppts (Jan: 1.3 ppts), the lowest in 33 months.
  
  − MoM: however, it expanded (0.5%; Jan: 0.4%) to a two-month high.

• M3 growth was attributable to a sustained expansion in net claims on private and government as well as net foreign assets
  
  − Claims on the private sector (5.7%; Jan: 5.5%): edged up due to higher loans (5.6%; Jan: 5.4%) but it was partially capped by slower growth in securities (6.6%; Jan: 6.7%). Its contribution to overall M3 inched up to 5.5 ppts (Jan: 5.4 ppts), the highest since March 2019.
  
  − Net claims on government (13.9%; Jan: 10.9%): surged to a one- year high, due to a sharp contraction in government deposits (- 22.2%; Jan: -6.0%), despite slower growth in government claims (5.8%; Jan: 7.7%). Its contribution to overall M3 growth edged up to 2.0 ppts (Jan: 1.6 ppts).
  
  − Foreign assets (8.0%; Jan: 8.0%): growth unchanged, due to double-digit growth in net foreign assets in the banking system (24.3%; Jan: 27.3%), and further expansion in BNM foreign assets (4.5%; Jan: 4.1%). Its contribution to overall M3 growth was unchanged at 2.0 ppts (Jan: 2.0 ppt).

• Loan growth expanded to a 16-month high (5.8% YoY; Jan: 5.7%)
  
  − By purpose: Due to a sustained expansion in two major components, led by residential property (7.5%; Jan: 7.4%),and working capital (5.1%; Jan: 4.7%), contributing a combined 3.9 ppts (Jan: 3.8 ppts) to overall loan growth.
  
  − By sector: sustained expansion recorded in the household sector (6.2%; Jan: 6.1%), contributing 3.7 ppts (Jan: 3.6 ppts) to overall loan growth and a 16-month high. Notably, credit growth of the construction sector (0.3%; Jan: - 1.1%), rebounded, following four consecutive months of contraction.
  
  − MoM: expanded (0.4%; Jan: 0.3%).

• Deposit growth moderated (4.0% YoY; Jan: 5.2%) to a 30-month low
  
  − Mainly weighed by a sharp moderation in foreign currency deposits (1.2%; Jan: 8.5%), which hit a five-month low.This was further dragged by slower demand deposits (5.6%; Jan: 7.4%) and a persistent weakness in negotiable instruments of deposits issued (-48.6%; Jan: -44.1%). Nevertheless, expansion in saving deposits (2.5%; Jan: 0.3%) partially mitigated the growth slowdown.
  
  − MoM: growth rebounded (0.5%; Jan: -0.1%) to a two-month high.

• 2024 loan growth forecast retained at 5.0% - 5.5% (2023: 5.3%) on a steadier domestic economic growth
  
  − Loan growth is expected to be sustainable in the near term, in line with our projected GDP growth expansion of4.5% - 5.0% for 2024 (2023: 3.7%), driven by a resilient domestic demand and a gradual recovery in the manufacturing sector, expected to benefit from a technology upcycle.
  
  − Likewise, we continue to expect BNM to hold its overnight policy rate (OPR) unchanged at 3.00% for the rest of the year given the lingering downside risk to economic growth amid uncertainty in the external sector, while keeping the inflation outlook in check amid the potential impact of targeted subsidy measures in the 2H24.

Source: Kenanga Research - 1 Apr 2024