Monetary and Financial Developments in June 2022

Monetary and Financial Developments in June 2022

Embargo : For immediate release Not for publication or broadcast before 1500 on Friday, 29 July 2022
29 Jul 2022

Headline inflation increased to 3.4% in June

• Headline inflation increased to 3.4% (May: 2.8%), mainly reflecting the higher core inflation (3.0%; May: 2.4%). The rise was contributed mainly by higher inflation for food away from home, expenditure in restaurant and cafe, and repair and maintenance for personal transport.
• The relatively sharp increase reflected higher price pressures amid the ongoing military conflict in Ukraine, adverse weather conditions in key food-exporting countries, stronger US dollar and improving domestic demand.
• Nevertheless, headline inflation is projected to remain within the 2.2% to 3.2% forecast range for the year.

Robust export growth in June

• Exports registered a robust growth of 38.8% (May: 30.4%) to RM146.2 billion, which is the highest level of exports on record.
• This reflects continued strength across Malaysia's export products, driven by strong global demand for manufactured exports and high commodity prices.
• Moving forward, export growth is expected to remain supported by continued external demand for semiconductors, albeit at a moderating pace due to slower global growth.

Higher expansion in net financing

• Net financing grew by 5.0% (May: 4.5%) driven by higher growth in outstanding loans (5.6%; May: 5.0%) while outstanding corporate bond growth remained unchanged at 3.4%.
• Outstanding household loan growth increased across all loan purposes (5.9%; May: 5.0%) reflecting higher growth in loan disbursements, especially for cars and houses.
• For businesses, outstanding loans grew at 5.8% (May: 5.4%), as growth in loan disbursements (23.0%; May: 20.8%) outpaced that of repayments (20.0%; May: 23.6%). By sector, the higher outstanding loan growth reflected stronger growth in wholesale and retail trade, and transport, storage and communication.

Domestic financial markets conditions tightened following the sharp rise in US interest rates

• In June, global financial market conditions tightened following the 75-bps hike (largest since 1994) in the US federal funds rate, amid elevated US inflationary pressures. This had subsequently raised concerns on the US and global economic growth outlook.
• Adjustments in the domestic financial markets remained orderly amid positive economic recovery prospects.
• Amid foreign portfolio outflows from the domestic bond market, 10-year MGS yields rose by 9.0 bps, a smaller increase compared to regional bond yields (average: 21.5 bps).
• The ringgit depreciated by 0.7% (regional average: -3.1%) in June amid broad US dollar strength, while the FBM KLCI declined by 8.0% (regional average: -7.1%).

Banks' liquidity and funding positions remain supportive of intermediation activities

• The banking system continued to record healthy liquidity positions, with the aggregate Liquidity Coverage Ratio at 148.4%.
• Banks' funding sources remained stable and supportive of credit intermediation in the economy amid sustained growth in deposits.
• Loan-to-fund ratio remained stable at 81.8%.

Asset quality in the banking system remained intact

• Overall gross impaired loans ratio increased slightly to 1.7% (May-22: 1.6%), but net impaired loans ratios remained broadly unchanged at 1.0%.
• Banks continued to be prudent in loan provisioning to buffer against potential credit losses, with total provisions and regulatory reserves amounting to RM 41.1 billion (May-22: RM 40.7 billion).
• Total provisions stood at 1.8% as a share of total banking system loans and 108.5% of impaired loans.

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