Price Conditions:
Headline inflation, as measured by the Consumer Price Index (CPI), increased to 3.3% on an annual basis. The main contributors to inflation during the month were the food and non-alcoholic beverages and transport categories. Higher food prices were mainly due to the increase in meat prices. Inflation in the transport category increased during the month reflecting the effect from the upward adjustment in the price of RON97 from RM2.70/litre to RM2.90/litre due to the rise in the price of WTI crude oil in April.
Monetary Conditions:
Following the Monetary Policy Committee’s (MPC) decision to raise the Overnight Policy Rate (OPR) by 25 basis points to 3.00% on 5 May 2011, interbank rates across all maturities adjusted upwards. In terms of retail rates, deposit rates were revised upwards by between 24 to 28 basis points. Similarly, the average base lending rate (BLR) of commercial banks rose from 6.27% to 6.54%, with all domestic commercial banks adjusting their respective BLRs by 30 basis points. Broad money (M3) increased by 11.1% on an annual basis. The increase during the month reflected mainly credit extension by the banking system to the private sector and higher trade inflows. Net financing to the private sector expanded in May due to higher private debt security (PDS) issuances and an increase in banking system loans during the month. PDS issuances rose due to several large issuances, mainly by the finance sector. Loans outstanding to businesses also expanded largely due to higher loans extended to the real estate; manufacturing; wholesale and retail trade, restaurants and hotels; and finance sectors. Loans to households continued to rise steadily, driven mainly by loans for the purchase of residential and non-residential properties; personal use and passenger cars. Loan applications continued to increase in May, with higher loan demand from both businesses and households.
Banking Conditions:
The banking system remained well-capitalised with the risk-weighted capital ratio (RWCR) and core capital ratio (CCR) at 14.4% and 12.8% respectively. The level of net impaired loans remained stable to account for 2.1% of net loans. Loan loss coverage stood at 92.2%.
Exchange Rates and International Reserves:
In May, the ringgit broadly depreciated against most of the currencies of Malaysia’s major trade partners with the exception of the euro. The ringgit’s depreciation was in line with the regional trend due to the heightened global risk aversion amid concerns over the sovereign debt crisis in Europe. In June, the ringgit continued to depreciate against the currencies of Malaysia’s key trading partners, with the exception of the euro. The international reserves of Bank Negara Malaysia stood at RM402.6 billion (equivalent to USD133.2 billion) as at 15 June 2011, sufficient to finance 9.5 months of retained imports and were 4.4 times the short-term external debt. (Central Bank of Malaysia,BNM)
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