Economic Highlights (Malaysia) - 01/04/2014

Broad Monetary Aggregate And Loan Growth Slowed In February

¨      The broader money supply, M3, slowed to 6.1% y-o-y in February, from +6.7% in January and compared with +7.5% in December. This was reflected in a weaker demand for funds by the private sector, but was mitigated by a faster increase in government operations and external operations during the month. 

¨      Loan growth also inched lower to 10.7% y-o-y in February, from +11.0% in January and compared with +11.4% recorded in the same period in 2013. This was attributed to a weaker growth in household and corporate loans during the month. As a whole, we expect the banking system’s loans to sustain its expansion at 10-11% in 2014, compared with +10.6% in 2013.

¨      Going forward, we expect inflationary pressure to build up due particularly to a change in administrative pricing by the Government that will spill over into other end-product and service prices. As a result, we expect inflation to trend up to an average rate of around 3.0-3.4% in 2014, from +2.1% in 2013, after factoring in another round of fuel prices hike. Further out, inflation is set to accelerate to 3.5-4.0% in 2015, the highest since 2008, when the 6.0% GST is implemented on 1 April 2015. This will likely prompt the Central Bank to increase its Overnight Policy Rate (OPR) by 25 basis points toward late 3Q 2014 to 3.25%, after keeping it unchanged at 3.0% for more than two years.

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