PETALING JAYA: Volatile and even divergent trends in local money supply, deposit and credit growth are expected in the coming quarters as policies and the Covid-19 pandemic continue to play out.
Maybank Investment Bank Research said in a note to clients that looking ahead, money supply, deposits and credit growth will be affected firstly, by another round of statutory reserve requirement (SRR) cut by Bank Negara to 2% which was effective March 20 and which released RM30bil in liquidity.
“Our sensitivity analysis based on SRR, M3, loans and deposits data since January 2007 shows a 1% change in SRR amount changes the amount of M3, total loans and total deposits by 0.8%, 0.9% and 0.1% respectively over 12 months, ” the research house said.
M3 basically refers to an economy’s broadest measure of money supply.
Secondly, the negative economic impact of the global pandemic which has resulted in the domestic movement control order (MCO), implemented from March 18 to April 14, has resulted in closures of non-essential businesses/activities which Maybank IB estimates to be around 60% of the nation’s gross domestic product.
This will also contribute to the volatile and divergent trend.
In its report, Maybank IB also noted that money supply or M3 had eased in February as slower deposits on a dissipating effect of November 2019’s 50 basis point SRR cut had offset the faster credit effect of the Chinese New Year holidays in January.
Going forward, expect volatile, even divergent, trends in money supply, deposit and credit growth on the liquidity impact from the 100 basis points SRR cut in March, the disruptive impact of the Covid-19 pandemic (including the March 18-April 14 MCO to contain its spread) and the economic stimulus package measures which include several credit-related measures, said Maybank IB.
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