PETALING JAYA: Malaysia's total money supply (M3) grew at a slightly slower rate in February, despite the pick-up in the banking system’s loan growth and corporate bond issuance growth.
In February, M3 grew by 3.7% year-on-year (y-o-y), compared with 3.9% y-o-y in January.
M3 is the broadest measure of the domestic money supply and is the total value of money available in an economy at a point of time.
Maybank IB Research said in a note yesterday that the moderation in M3’s growth was due to slower deposits and lower external reserves.
With the dissipating effect of Bank Negara’s move to cut the Statutory Reserve Requirement (SRR) by 50 basis points (bps) in November last year, the banking system’s total deposit growth moderated to 2.6% y-o-y in Feb 2020 from 2.9% a month earlier.
External reserves, which were also a drag on M3, fell to RM423.3bil (US$103.4bil) as at end-Feb 2020 versus RM426.3bil (US$104.2bil) as at the end of January.
This was amid net portfolio capital outflows as indicated by foreign net sell of equities and bonds.
Moving forward, Maybank IB Research expects “volatile, even divergent” trends in money supply, deposit and credit growth.
Three key factors are anticipated to have an impact on money supply, deposit and credit growth. One of the factors is the liquidity impact from 100 bps SRR cut in March.
“Our sensitivity analysis based on SRR, M3, loans and deposits data since January 2007 shows a 1% change in the SRR amount changed the amount of M3, total loans and total deposits by 0.8%, 0.9% and 0.1% respectively over 12 months, ” stated Maybank IB Research.
Another factor is the negative economic impact of the global Covid-19 pandemic, which has resulted in closures of non-essential businesses.
Meanwhile, the RM250bil economic stimulus package is also expected to impact money supply, deposits and credit growth ahead. The research house said that the six-month loan repayment moratorium worth RM100bil, which is part of the stimulus package, will affect the banking system’s loans growth.
“To note, outstanding loans growth is a function of disbursements net of repayments, so there will be impact of loan repayments moratorium on loans growth but also depending on disbursements, which is a function of loan applications and approvals as well as borrowers’ and lenders’ risk appetite, ” it said. Commenting on consumer credit data in February, Maybank IB Research said the performance was mixed compared to January. For perspective, household total loans grew by 3.7% y-o-y in February (Jan 2020: 4.5%), while household loans approvals increased by 16.8% y-o-y in February (Jan 2020: -13.2%). Passenger vehicle loans declined by 0.8% y-o-y in February, similar to the performance a month earlier.
However, passenger vehicle loan approvals surged by 22.2% y-o-y in February compared to a decline of 1.2% in January.
“Consumer credit indicators in March-April 2020 are expected to be negatively affected by the Movement Control Order imposed for the period Mar 18-Apr 14 to contain the local spread of the Covid-19 pandemic, as closures of non essential economic activities which we estimated to be around 60% of gross domestic product affect consumer spending, ” the research house said.
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