MONETARY AND FINANCIAL DEVELOPMENTS May 2012

Price Conditions: Headline inflation, as measured by the annual percentage change in the Consumer Price Index (CPI) moderated to 1.7% in May. The drop in inflation was largely due to the housing, water, electricity, gas and other fuels category, where prices rose by a slower rate of 1.6% in May due to lower inflation in the actual rental for housing sub-category. Furthermore, the transport category registered a lower inflation rate as the impact from the May 2011 increase in RON97 petrol price have dissipated. However, inflation in the food and non-alcoholic beverages category rose to 3.0% in May, as the oversupply of food items has been reduced.

Monetary Conditions: Interbank rates were stable in May. In terms of retail lending rates, the average base lending rate (BLR) of commercial banks remained unchanged at 6.53% as at end of the month. Retail deposit rates were also relatively stable during the period. The annual growth in broad money (M3) moderated to 13.2% in May. On a monthly basis, the contraction of M3 was attributed to higher Government fundraising activities and net foreign outflows during the month. The contraction of M3, however, was partly mitigated by the increase of credit extended to the private sector. Net financing to the private sector expanded by RM22.3 billion in May, mainly through banking system loans. Banking system loans to businesses grew for most sectors during the month, with an increase in loans extended particularly to the real estate, finance, insurance and business services; manufacturing and construction sectors. Household loans outstanding also continued to rise steadily, driven mainly by loans for the purchase of residential and non-residential properties, purchase of passenger cars and personal loans. Loan demand increased in May, with higher loan applications from both businesses and households. 

Banking System: The banking system remained well-capitalised with risk-weighted capital ratio (RWCR) and core capital ratio (CCR) at 14.6% and 12.8% respectively. The level of net impaired loans improved, amounting to 1.6% of net loans due to continued recoveries and write-offs by some banks. Loan loss coverage remained high at 93.2%.

Exchange Rates and International Reserves: In May, the ringgit depreciated against most currencies of Malaysia’s major trading partners. The ringgit appreciated against the euro, but depreciated against the Japanese yen, US dollar, Chinese renminbi and Singapore dollar. The ringgit and other regional currencies broadly depreciated against the US dollar as heightened uncertainties over the European sovereign debt crisis prompted international investors to unwind their holdings of emerging market assets. In June, the ringgit along with other currencies appreciated against the US dollar, reflecting positive developments in Europe after the Greek elections, which revived demand for emerging market assets. The international reserves of Bank Negara Malaysia stood at RM417.3 billion (equivalent to USD136 billion) as at 15 June 2012, sufficient to finance 9.3 months of retained imports and are 4.1 times the short-term external debt.  


Source: Bank Negara Malaysia