MONETARY AND FINANCIAL DEVELOPMENTS June 2012

Price Conditions: Headline inflation, as measured by the annual percentage change in the Consumer Price Index (CPI) moderated to 1.6% in June, due to lower inflation in the transport and food and non-alcoholic beverages categories. Inflation in the transport category declined as the price of RON97 petrol was revised downward in June 2012. The food and non-alcoholic beverages category also registered a lower inflation rate of 2.9% during the month following smaller increase in prices in the food away from home sub-category.

Monetary Conditions: Interbank rates were stable in June. 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 12.8% in June. On a monthly basis, M3 increased, reflecting mainly higher credit extended to the private sector. The expansion in M3, however, was partially mitigated by net foreign outflows and Government fundraising activities during the month. Net financing to the private sector expanded by RM26.5 billion in June, due to higher net issuances of private debt securities (PDS) and an increase in outstanding banking system loans. There was continued expansion in banking system loans to businesses, mainly to the finance, insurance and business services; manufacturing; agriculture and wholesale and retail, restaurants and hotels sectors. Loans to households also expanded during the month, driven mainly by loans for the purchase of securities, residential property and passenger cars. Loan demand remained high with sustained 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 14.7% and 12.9% respectively. The level of net impaired loans improved, amounting to 1.5% of net loans due to recovery and write-off exercise by some banks as part of the balance sheet strengthening exercise.  Loan loss coverage remained high at 98.9%.

Exchange Rates and International Reserves: In June, the ringgit depreciated against most of the currencies of Malaysia’s major trading partners. The ringgit ended the month slightly weaker against the US dollar as international investors’ unwound holdings of emerging market assets following concerns over the outlook for global economic growth and renewed uncertainties over the European sovereign debt crisis. The ringgit also depreciated against the euro, Singapore dollar and Chinese renminbi, while recording a modest appreciation against the Japanese yen. In July, the ringgit along with most other currencies appreciated against the US dollar as expectations for monetary easing in the advanced economies renewed investor interest for emerging market assets. The international reserves of Bank Negara Malaysia stood at RM429.4 billion (equivalent to USD134.4 billion) as at 13 July 2012, sufficient to finance 9.4 months of retained imports and are 4.3 times the short-term external debt. 

Source: Bank Negara Malaysia