Money supply growth slows in February

PETALING JAYA: Malaysia’s total money supply (M3) grew at a slightly slower pace in February, despite the resumption of growth in banking system lending and growth in corporate bond issuance.

In February, M3 grew 3.7% year-on-year (yoy), compared to 3.9% year-on-year in January.

M3 is the broadest measure of the national money supply and is the total value of money available in an economy at any given time.

Maybank IB Research said in a note yesterday that the moderation in M3 growth was due to slowing deposits and falling external reserves.

With the chilling effect of Bank Negara’s decision to reduce reserve requirements (SRR) by 50 basis points (bps) in November last year, total banking system deposit growth slowed to 2.6. % year-on-year in February 2020 compared to 2.9% a month earlier.

External reserves, which also weighed on M3, fell to RM 423.3 billion ($ 103.4 billion) at the end of February 2020 from RM 426.3 billion ($ 104.2 billion) at the end of January.

This happened against a backdrop of net portfolio capital outflows, as indicated by net foreign sales of stocks and bonds.

Going forward, Maybank IB Research expects “volatile, if not divergent” trends in money supply, deposit and credit growth.

Three key factors are expected to impact money supply, deposits and credit growth. One factor is the impact on liquidity of the 100bp drop in the SRR in March.

“Our sensitivity analysis based on SRR, M3, loans and deposits data since January 2007 shows that a variation of 1% in the amount of SRR changed the amount of M3, total loans and total deposits from 0, 8%, 0.9% and 0.1% respectively over 12 months. Maybank IB Research said.

Another factor is the negative economic impact of the global Covid-19 pandemic, which has resulted in the shutdown of non-essential businesses.

Meanwhile, the RM250 billion economic stimulus package is also expected to impact future money supply, deposits and credit growth. The research house said the moratorium on the repayment of six-month loans worth RM100 billion, which is part of the stimulus package, will affect the growth of lending in the banking system.

“Note, the growth in outstanding loans is a function of disbursements net of repayments, so there will be an impact of the moratorium on loan repayments on loan growth but also according to disbursements, which is a function of requests. and loan approvals as well as “risk appetite” borrowers and lenders, he said. Commenting on consumer credit data in February, Maybank IB Research said performance was mixed compared to January. As an indication, total household loans increased 3.7% yoy in February (January 2020: 4.5%), while household loan approvals increased 16.8% yoy in February (January 2020: -13.2%). Passenger vehicle loans fell 0.8% yoy in February, a performance similar to a month earlier.

However, auto loan approvals jumped 22.2% year-on-year in February, from a drop of 1.2% in January.

“Consumer credit indicators in March-April 2020 should be negatively affected by the movement control order imposed for the period from March 18 to April 14 to contain the local spread of the Covid-19 pandemic, as that shutdowns of non-core economic activities that we estimated at around 60% of gross domestic product affect consumer spending, ”the research house said.

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