Economich Highlights (Malaysia) - 30/04/2014

Broad Monetary Aggregate Remained Stable, While Loan Growth Inched Lower In March

¨        The broader money supply, M3, remained stable at 5.9% y-o-y in March, unchanged from the previous month and compared with +6.4% in January. A faster increase in government operations was offset by a weaker demand for funds by the private sector and a slower increase in external operations during the month. 

¨        Loan growth inched lower to 10.2% y-o-y in March, from +10.7% in February and compared with +10.6% 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 inflation to stay elevated for another few months due to a change in administrative pricing by the Government. 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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