BNM: Headline inflation drops to 3.9% in May


Malaysia’s headline inflation for May declined to 3.9% from 4.4% in April as lower fuel prices helped to reduce anxiety over the rising cost of living.

Bank Negara Malaysia (BNM) in a statement said that the average price of RON95 petrol was lower at RM2.09 per litre in May compared to RM2.21 per litre in April.

It noted that with global oil prices trending lower in June, domestic fuel prices also averaged lower in June.

Fuel prices had been credited for the rise on inflation over the first few months of this year after the commodity crossed the US$50 (RM215) a barrel price. The rise in inflation is also credited to a lower base in 2016 when crude oil prices dropped to below US$30 in the first-quarter (1Q).

The central bank also noted the continued non-resident inflows totalling RM12.1 billion into the domestic financial market, subsequently boosting the ringgit, which remained the best performer across the region in May 2017, appreciating by 1.7% against the US dollar.

Non-resident inflows into the government bond market amounted to RM9 billion in May, a second consecutive month of inflows.

“The inflows reflect positive developments arising from measures to develop the domestic financial market. As a result, the three-year, five- year and 10-year Malaysian government securities yields declined by four, 13 and 17 basis points respectively,” BNM said.

The equity market also continued to receive interest from foreign investors, recording RM2 billion in May. Sentiments were supported by the stronger than expected gross domestic product growth in the 1Q of the year as well as improved ringgit outlook.

“However, a sell-off towards the end of the month led to the FTSE Bursa Malaysia Kuala Lumpur Composite Index declining slightly by 0.1%,” BNM stated.

On international reserves, the central bank said its reserves have increased steadily throughout the year.

“As at June 15, 2017, international reserves are sufficient to finance 8.2 months of retained imports, higher than the three-month international threshold, and 1.1 times the short-term external debt,” it said.

It noted that not all short-term external debt creates a claim on reserves given the availability of external assets and export earnings of borrowers.

Liquidity in the banking system remains supportive of banks’ financing activities, with the aggregate surplus liquidity placed with BNM standing at RM179.2 billion.

The aggregate surplus is the outstanding ringgit liquidity placed with BNM including money market borrowings, repurchase agreements, BNM debt securities held and statutory reserve requirement.

BNM said all banks also maintain liquidity coverage ratios above the regulatory requirement to meet unexpected cash outflows or adverse liquidity shocks.

The minimum liquidity cover ratio requirement beginning Jan 1 this year is 80%, following the transitional implementation.