MONETARY AND FINANCIAL DEVELOPMENTS July 2012

MONETARY AND FINANCIAL DEVELOPMENTS

July 2012

Price Conditions: Headline inflation, as measured by the annual percentage change in the Consumer Price Index (CPI) moderated to 1.4% in July. Inflation in the food and non-alcoholic beverages category registered a lower inflation rate of 2.6% due to the decline in meat prices during the month. Prices in the transport category declined by 0.2% as the price for RON97 petrol was adjusted downward to RM2.60 per litre in July 2012 (July 2011: RM2.80 per litre).

Monetary Conditions: Interbank rates were stable in July. 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) increased at a higher annual rate of 13.5% in July. On a monthly basis, M3 increased on account of net portfolio inflows and sustained financing activity. Net financing to the private sector grew 13.2% in July due to higher growth in outstanding banking system loans. Business loans outstanding expanded by 14.6% during the month with loans extended mainly to businesses in the transport, storage and communication; agriculture; manufacturing and construction sectors. Loans to households were driven mainly by loans for the purchase of residential and non-residential properties, passenger cars and securities. Loan demand remained robust with sustained loan applications, especially from households.

Banking System: The banking system remained well-capitalised with risk-weighted capital ratio (RWCR) and core capital ratio (CCR) at 14.4% and 12.7% respectively. The decline in capital base was due to the redemption of subordinated debt capital by a bank. The level of net impaired loans remained stable at 1.5% of net loans, while the loan loss coverage remained high at 100.9%.

Exchange Rates and International Reserves: In July, the ringgit appreciated against the currencies of most of Malaysia’s major trading partners. The ringgit appreciated against the US dollar as expectations of monetary easing in the US and China, and expectations of progress in resolving the European sovereign debt crisis renewed investor interest for emerging market assets. The ringgit also appreciated against the euro and Chinese renminbi, but depreciated against the Singapore dollar. The ringgit remained unchanged against the Japanese yen. In August, the ringgit continued to appreciate against the US dollar, following better-than-expected economic data releases in Malaysia. The international reserves of Bank Negara Malaysia stood at RM430.5 billion (equivalent to USD134.7 billion) as at 15 August 2012, sufficient to finance 9.5 months of retained imports and is 3.9 times the short-term external debt.

Source: Bank Negara Malaysia