Headline inflation lower at 3.2% in July, lending moderated

This comes as lower fuel prices helped to ease pressure on prices and further deterioration of consumers’ buying power


Malaysia’s headline inflation for July declined to 3.2% from 3.6% in June, as lower fuel prices helped to ease pressure on prices and further deterioration of consumers’ buying power.

Bank Negara Malaysia (BNM) said the average price of RON95 petrol was RM1.96 per litre in July, four sen lower compared to the average fuel pump price in June.

Inflation in the food and non-alcoholic beverages sub-category was slightly lower at 4.2% compared to 4.3% in June.

National headline inflation had jumped to 4.4% in April before moderating to 3.9% in May. Lower fuel prices had contributed to the lower May figures.

Malaysians are worried that inflation will rise higher than average wages. Higher inflation would also decrease the purchasing power. Over the last 18 months, retail spending has been impacted as Malaysians opted to spend less, despite a strong economic growth reported in the first-half of the year (1H17).

Meanwhile, the banking system’s outstanding loan growth dropped to 5.6% in July compared to 5.7% in June, while net financing to the private sector moderated to 6.8% in July com- pared to June’s 7.2% growth.

The central bank said outstanding small and medium enterprise loans grew 8.1% in July from 7.6% in June, driven by the expansion in the manufacturing, construction, and finance, insurance and business services sectors.

The banking system approved RM33 billion of loans for July compared to RM33.4 billion for the month before, according to figures from the central bank.

Approved loans for construction rose to RM2.97 billion in July compared to RM1.82 billion for June, RM1.1 billion for electrical, gas and water supply for July (June: RM99 million) and RM17.57 billion for the household segment (June: RM16.27 billion).

But lending for mining and quarrying dropped more than half to RM42.4 million (June: RM87.6 million), RM1.99 billion for manufacturing (including agro-based) (June: RM2.3 billion) and RM2.26 billion for real estate (June: RM3.31 billion).

Impaired loans also rose to RM26 billion in July compared to RM25.5 billion a month earlier. Impaired loans for residential property purchases rose to RM5.6 billion compared to RM5.59 billion in June and RM9.2 billion for working capital compared to RM8.91 billion in June, the central bank’s statistics showed.

Total employment by the financial sector stood at 165,044 persons in July, with high- skilled workers representing 74% and 83% of the banking and insurance or takaful sector workforce respectively.

“More than 90% of jobs created and job vacancies were similarly for high-skilled positions, providing the impetus for further upskilling of the workforce going forward,” BNM said.

The central bank said the country’s financial markets were relatively stable for July, despite the cautious market sentiments leading up to the Federal Open Market Committee meeting on July 26, 2017.

Financial market participants also traded cautiously during the month due to uncertainties stemming from geopolitical tensions between the US and North Korea, and concerns over the US administration’s ability to deliver its fiscal reforms.

“This resulted in marginal movements in the bond, equity and ringgit markets. Bond yields increased by 3.8 basis points amid non-resident outflows of RM1.5 billion. The equity market and the ringgit exchange rate were relatively unchanged,” BNM said.

Banks’ loan-to-fund ratio stood at 83.5% in July, reflective of a broader funding base.

The liquidity coverage ratio (LCR) of the banking system stood at 137.1%, above the transitional minimum regulatory requirement of 80%.

This is in accordance to the Basel 3 LCR, which has been phased in since June 2015 with initial compliance set at 60% and progressive increments of 10% each year until 100% with effect from 2019. As of Jan 1, 2017, the minimum requirement is 80%.

Growth of net financing to the private sector moderated to 6.8% in July from 7.2% in June.

BNM said although the growth in net outstanding issuances of corporate bonds moderated, it remained supportive at 10.6% in July versus 11.8% in June.