KUALA LUMPUR: Malaysia’s broad money supply growth (M3) accelerated in March to 5.9 per cent year-on-year, the highest growth recorded since June 2015 or a 33-month high, buoyed by a surge in net foreign assets at 6.4 per cent, providing a higher 1.9 percentage points (ppts) contribution to the overall M3 growth.
Kenanga Investment Bank Bhd in a note today said the month’s higher growth in net foreign assets could partly be due to the month’s ringgit’s appreciation by 1.6 per cent, reducing the translation value of net foreign assets held.
However, net claims on government and claims on private sector moderated in March, leaving a lacklustre outlook for overall money supply growth.
Besides that, narrow money growth (M1) moderated for the third month to 7.9 per cent over the same period. On a mont-on-month basis, M1 fell 0.7 per cent, mainly due to a drop in demand deposits which is largely due to the decline in capital market performance and weaker business environment.
The continuous decline in the M1 growth in the first three months of the year suggests heightened risks in domestic spending, pointing to the possibility of weakening economic conditions, Kenanga noted.
Corroborating the month’s lower money supply growth, Kenanga said loan growth moderated slightly to 4.4 per cent year-on-year.
“By purpose, loans for purchase of non-residential property and working capital registered moderation in growth,” it said.
By sectors, Kenanga said loan growth moderated across key economic sectors including primary agriculture, transport, storage and communications as well as finance, insurance and business activities sectors.
However, on a monthly basis, loan growth edged slightly higher at 0.4 per cent, suggesting that growth is still holding up albeit moderating.
The month’s lower lending activities were in line with higher weighted average lending rates by commercial banks at 4.8590 per cent per annum.
Meanwhile, Kenanga said deposit growth surged to 5.2 per cent year-on-year, the highest growth recorded since June 2015.
Similarly, deposit growth accelerated on a month-on-month basis at two per cent.
“Concerns over uncertainties on the upcoming general election and the economy may have partly contributed to this,” it said.
Meanwhile, Kenanga said the month’s higher savings activities were in line with the rising savings deposits rate by commercial banks of 1.0388 per cent per annum in March.
On a bright note, banks’ liquidity condition remained healthy as the Liquidity Coverage Ratio was up for the second month at 140.8 per cent, with a surge in the banking system’s stock of high liquid assets to 3.4 per cent month on month, contributed to higher liquidity position of the banking system.
Kenanga foresees the recent rise in US Treasury bond yields, the consequent higher expectation for a fourth rate hike and rising trade tensions tempering investors’ optimism on emerging markets, including Malaysia in the short term.
“Hence, elevating the risks of foreign funds outflow. However, domestic factors, including higher supply of bonds, the upcoming 14th General Election and moderating growth indicators leaves behind little comfort for this year’s money supply growth.
“While we foresee heightened risks of capital outflow, we expect BNM (Bank Negara Malaysia) to hold off from further rate hike and retain the Overnight Policy Rate at 3.25 per cent for 2018 in favour of growth and price stability,” it said.