PP 7767/09/2010(025354)

Malaysia
Economic Highlights
•
MARKET DATELINE

30 August 2010

Broad Monetary Aggregate And Loan Growth

Moderated In July

◆ The broader money supply, M3, slowed down to 8.1% yoy in July, from +8.8% in June and +9.3% in May. This
was the second consecutive month of easing, suggesting that the underlying economic activities are moderating. The
slowdown was due to weaker demand for funds by the private sector, on the back of slower increases in loans and
the issuance of securities. This was, however, mitigated by a pick-up in government operations and external
operations during the month.

◆ Loan growth also moderated to 11.9% yoy in July, from +12.5% in June. This was due mainly to a slowdown
in corporate loans, which was mitigated by a pick-up in household loans during the month. As a whole, we expect
the banking system’s loans to expand at a stronger pace of 10-11% in 2010, compared with +7.8% in 2009.

◆ Although the Central Bank appears to have done with its interest rate hike this year, another 25 basis point
increase in September cannot be ruled out altogether in a move to normalise its monetary conditions and
it will likely be data dependent.

The broad monetary aggregate and loan growth moderated in July.

Table 1
The broader money supply, M3, slowed down to 8.1% yoy in
Money And Banking Statistics
July, from +8.8% in June and +9.3% in May (see Table 1). This was
the second consecutive month of easing, suggesting that the underlying M1 M2 M3 Deposits Loans*
economic activities are moderating. The slowdown was due to weaker
demand for funds by the private sector, on the back of slower % yoy

increases in loans and the issuance of securities. This was, however, 2008 8.3 13.4 11.9 11.9 12.8
mitigated by a pick-up in government operations and external 2009 9.8 9.5 9.1 9.3 7.8
operations during the month. In the same vein, M1, softened to
‘10 Jun 12.6 9.2 8.8 9.0 12.5
10.7% yoy in July, from +12.6% in July, due to slower increases in Jul 10.7 8.3 8.1 8.7 11.9
demand deposits and currency in circulation. Mom, M1 slipped into
% mom
a contraction of 1.7% in July, from +1.0% in June. Similarly, M2
‘10 Jun 1.0 0.7 0.4 1.8 1.7
slowed down to 0.4% mom in July, from +0.7% in June, while M3
Jul -1.7 0.4 0.4 -0.1 0.8
held stable at +0.4% mom in July, the same rate of increase as in % yoy, moving-average
June.
‘10 Jun 10.9 9.1 8.7 8.6 11.0
Loan growth also moderated to 11.9% yoy in July, from +12.5% Jul 11.5 9.0 8.7 8.7 11.5
in June (see Table 2). This was due mainly to a slowdown in * Including loans sold to Cagamas and Danaharta.
corporate loans, which was mitigated by a pick-up in household loans L/D series have been revised to exclude deposits & loans
during the month. The slowdown in corporate loans was due to a placed between the babking system beginning April 2009.
slowdown in loans extended to agriculture; utilities; wholesale &
retail trade and restaurant & hotel; construction; real estate; transport, storage & communications; and education &
healthcare sectors. These were, however, mitigated by stronger growth in loans given to mining; manufacturing; and
finance, insurance & business sectors during the month. Household loans, on the other hand, strengthened to 13.2%

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 30 August 2010

yoy in July, the eighth straight month of picking up

Table 2
and from +12.9% in June. This was underpinned by
Banking System - Loans By Sectors
a pick-up in loans extended for the purchase of
passenger cars and houses. A pick-up in credit card 2008 2009 2010 2010
loans and a smaller drop in loans provided for the Jun Jul Jun Jul

purchase of consumer durable goods also helped. Key Sectors (% yoy) Chg, RMbn (% yoy)

These were, however, offset partially by a moderation Manufacturing 8.8 -6.3 2.3 -0.8 7.1 7.3
in loans extended for personal use. As a whole, we Construction&real estate 14.5 14.1 1.3 -1.2 11.8 8.7
expect the banking system’s loans to expand at a Wholesale & Retail 9.0 -1.2 0.8 0.2 8.6 8.2
stronger pace of 10-11% in 2010, compared with Transport & Storage 53.8 9.1 0.9 0.0 22.7 19.5
+7.8% in 2009. Mom, the net amount of loans disbursed Finance, Ins. & Bus. 21.0 2.6 0.7 1.1 9.4 10.5
by the banking system slowed down to 0.8% or Household sector 9.7 9.8 5.2 5.0 12.9 13.2
RM6.3bn in July, from +1.7% or RM14.0bn in June.
Total Loans* 12.8 7.8 14.0 6.3 12.5 11.9

Similarly, total deposits weakened to 8.7% yoy *Including loans sold to Cagamas and Danaharta
in July, after remaining stable at +9.0% in the
previous two months. Mom, deposits fell by 0.1%
mom or -RM1.4bn in July, compared with +1.8% or +RM19.0bn in June.

Going forward, inflation is expected to increase at a faster pace due to the Government’s move to raise fuel and
sugar prices with effect from 16 July in order to gradually reduce its subsidy. For petrol RON 95 and diesel, the prices
were increased by 2.8-2.9%, while LPG price was raised by 5.7%. In the case of sugar, the price was adjusted upward
by 16.7%. Given that retail petrol and sugar account for 7.5% and 0.5% respectively of the weight in the Consumer
Price index (CPI), our estimate showed that the increases would add 0.2 percentage point and 0.08 percentage point
respectively to the CPI. As for diesel and LNG, the impact would not be significant due to the low weightage in the CPI
(0.2% and 0.5% respectively). As a whole, we believe the direct impact on the CPI is not likely to be very
significant given that the increase was gradual and it will likely be one-off. This, together with some spill-over effect,
will likely push up the CPI in 2H 2010 to around 2.6% yoy, from +1.4% recorded in the 1H. For the full-year, we expect
inflation to trend up to an average of 2.0% in 2010, from +0.6% in 2009.

Although the change in administrative pricing will lead to higher inflationary pressure, we believe Bank Negara Malaysia
(BNM) will unlikely act on it. As it stands, its interest rate hike currently was geared towards normalising its monetary
condition rather than controlling inflation and it has since raised its key policy rate for the third time in July. Although
the Central Bank appears to have done with its interest rate hike this year, another 25 basis point increase in
September cannot be ruled out altogether and it will likely be data dependent. Further out, we believe the Central
Bank will likely continue with its policy normalisation and the overnight policy rate (OPR) will likely be raised by 50-75
basis points in early part of 2011 to bring it to a more normal level of 3.25-3.5% by mid-2011.

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