Growth of the
broader money supply, M3, picked up to 3.2% y-o-y in October was on account
of a sustained increase in demand for funds by the private sector. Including
the Islamic Investment Accounts, M3, picked up to 4.9% y-o-y during the
month, from +4.0% in September, which is in line with our M3 estimate of
4.0%-5.0% as at end-2016. We expect M3 to grow around 4.0% in 2017.
Similarly, loan
growth gained pace to 4.5% y-o-y in October, from +4.2% in August
and September on the back of a pick-up in corporate loans. Stricter lending
rules and a slowdown in property market will likely cause loan growth to slow
down to around to 3.7% in 2017, from an estimated 4.3% in 2016.
Given the modest
monetary growth that is unlikely to give rise to inflationary pressure, we envisage the headline inflation rate to remain
manageable at 2.5% in 2017, albeit up slightly from +2.0% estimated for 2016. This, coupled with the rising currency volatility,
suggests that the Central Bank will likely be cautious and keep the OPR unchanged
at the current level of 3.00% in 2017.
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