Monetary conditions in Malaysia remain under pressure, with capital outflows continuing to occur, but at a slower pace. Nevertheless, monetary and credit outlook is becoming brighter thanks to a recovery in demand and better growth in the gross domestic product (GDP).
"With interest rates remaining somewhat stable relative to November 2016 and potential upsides from Bank Negara Malaysia's (BNM) measures, we see improved prospects for monetary and credit conditions, underpinned by a recovery in demand and stronger economic growth" according to MIDF Research.
"Furthermore, despite outflows weighing against the ringgit, we believe that rising global crude oil prices will help lend further support to the local currency. We, therefore, reaffirm our revised Q1 2017 ringgit forecast to a narrower range of 4.40 to 4.50.â€
The research division of Kenanga Investment Bank Bhd also feels that the central bank will keep the overnight policy rate (OPR) at 3.0 percent until June 2017, as there are currently no significant threats that could jeopardise the country's growth trajectory.
Kenanga Research also revealed that Malaysia's overall money supply increased by 3.0 percent year-on-year last December compared to the 2.9 percent gain recorded in November. On a monthly basis, it edged up by 0.8 percent or RM13 billion versus the 0.2 percent uptick or (RM3 billion) in November.
"Growth continues to be driven by expansion in loans to the private sector, which grew six percent from five percent in November, though this was somewhat mitigated by a marginal decline in net foreign assets from December's net capital outflow.â€
"Overall money supply growth was further curbed from the continued growth in the Islamic Investment Accounts, which saw â€˜other influencing' subcomponent falling sharply to RM640 billion from RM605.8 billion during November" it said.
Looking ahead, money supply is expected to climb by 4.5 percent this year, from 2.6 percent and 3.0 percent in 2015 and 2016 respectively, according to RHB Research Sdn Bhd. However, loan growth is projected to hit about 4.5 percent in 2017, down from 7.9 percent in 2015 and 5.3 percent last year.
This downward trend is due to tighter guidelines on loan approvals and a weaker real estate market, as well as the moderating volume of business loans, given the sluggish economic growth.