• Broad money (M3) growth expanded to a 19-month high (6.2% YoY; Feb: 5.7%) in March
  
  − Growth was bolstered by higher demand deposits (8.6%; Feb: 7.1%), and foreign currency deposits (13.0%; Feb: 3.4%), contributing 3.1 ppts (Feb: 1.8 ppts) to overall M3 growth.
  
  − MoM: growth sustained (0.5%; Feb: 0.5%), adding RM11.3b.

• M3 growth was boosted by higher net foreign assets
  
  − Claims on the private sector (5.5%; Feb: 5.7%): slowed due to lowersecurities (3.8%; Feb: 6.6%) but it was partially supported by higher loans (5.8%; Feb: 5.6%). Its contribution to overall M3 inched up to 5.5 ppts (Jan: 5.4 ppts), the highest since March 2019.
  
  − Net claims on government (14.3%; Feb: 14.0%): expanded to a 13- month high amid higher government claims (8.8%; Feb: 5.8%), while government deposits continued to fall (-11.3%; Feb: -22.2%), for an eight-straight month. Nevertheless, its contribution to overall M3 growth remained unchanged at 2.1 ppts (Feb: 2.1 ppts).
  
  − Foreign assets (12.9%; Feb: 8.0%): accelerated due to a surge in net foreign assets in the banking system (46.6%; Feb: 24.3%), and further expansion in BNM foreign assets (5.7%; Feb: 4.5%) which hit a seven-month high. Overall, its contribution to overall M3 growth edged up to 3.3 ppts (Feb: 2.0 ppt).

• Loan growth expanded to a 17-month high (6.0% YoY; Feb: 5.8%)
  
  − By purpose: Loan growth expansion was led by residential property (7.4%; Feb: 7.5%), followed by non-residentialproperty (5.6%; Feb: 5.2%) and other purposes (7.0%; Feb: 2.5%), with a combined contribution of 3.7 ppts (Feb: 3.5 ppts). This was partly offset by a sharp slowdown in purchase of securitites (-10.7%; Feb: 11.5%).
  
  − By sector: sustained expansion recorded in the household sector (6.3%; Feb: 6.2%), with contribution to overall loan growth remained unchanged for the third straight month (3.7 ppts; Feb: 3.7 ppts). Growth was also supported by higher growth in finance & insurance (20.7%; Feb: 19.4%) and other sector (15.1%; Feb: 7.1%).
  
  − MoM: expanded (0.6%; Feb: 0.5%) to a three-month high

• Deposit growth expanded (5.0% YoY; Feb: 4.0%) to a two-month high
  
  − Bolstered by higher foreign currency deposits (12.0%; Feb: 1.2%), which surged to a 12-month high. This wasfurther supported by higher demand deposits (9.4%; Feb: 5.6%). Nevertheless, growth momentum was partially capped by a moderate growth in saving deposits (1.0%; Feb: 2.5%) as well as fixed deposits (3.6%; Feb: 4.3%).
  
  − MoM: growth expanded (0.8%; Feb: 0.5%) to a three-month high, adding RM20.5b, the highest in three months.

• Loan growth forecast revised higher to 5.5% - 6.0% from 5.0% - 5.5% (2023: 5.3%) previously
  
  − Loan growth is expected to remain elevated in the near term, partly due to a lower base effect, and in line with ourprojected GDP growth expansion of 4.5% - 5.0% for 2024 (2023: 3.7%). This is reflected by several key macro indicators which point to a steady growth expansion such as a lower unemployment rate amid sustained job growth, and stable retail sales backed by further increases in tourist arrivals and spending.
  
  − Likewise, we continue to expect BNM to keep its overnight policy rate (OPR) unchanged at 3.00% in its upcoming MPC meeting on May 9th, as well as for the rest of the year. We believe BNM would prioritise economic growth given the lingering downside risk to the growth outlook amid heightened uncertainty in the external sector, while also ensuring the inflation outlook remains broadly stable.

Source: Kenanga Research - 2 May 2024