The Central Bank released the February highlights on the country’s financial and economic standing noting that the headline inflation edged higher, while core inflation remained unchanged
- Headline inflation increased to 1.8% in February (January 2024: 1.5%), while core inflation remained unchanged at 1.8% (January 2024: 1.8%). The increase in inflation Bank Negara said was driven mainly by higher inflation for utilities, following upward revision in water tariffs in early February. For core inflation, higher food away from home inflation was largely offset by lower inflation for actual rental paid by tenants.
Manufacturing industrial production index (IPI) rebounded to 3.7% in January 2024
- The manufacturing industrial production index grew by 3.7% in January 2024 (December 2023: -1.4%). Growth in the export-oriented clusters turned around amid stronger production of chemical, rubber, and plastic products while production of electrical and electronics (E&E) registered a modest rebound. Meanwhile, growth in the domestic-oriented clusters improved further, reflecting higher production of both transport equipment and construction materials.
Sustained growth in credit to the private non-financial sector
- BNM noted that credit to the private non-financial sector grew by 5.1% as at end-February 2024 (January 2024: 5%), supported by higher growth in outstanding loans (5.6%; January 2024: 5.4%). Outstanding business loan growth increased to 4.7% (January 2023: 4.3%), driven by higher growth in both working capital and investment-related loans. Meanwhile, outstanding corporate bonds growth moderated to 3.3% (January 2024: 3.6%). For households, outstanding loan growth remained stable at 6.1% (January 2024: 6%), with sustained growth across key loan purposes. Of note, growth in household loan disbursements has remained forthcoming (11.1%; January 2024: 19%).
Domestic financial markets were mainly driven by global investors’ expectations that the US Federal Reserve would keep its policy rate high for longer
The Central Bank pointed out that the global financial markets reacted to expectations that the US Federal Reserve would make fewer rate cuts and maintain its current high policy interest rate for longer in light of the release of strong US labour market data and persistently elevated core inflation. Against this backdrop, BNM said the ringgit depreciated by 0.7% against the US dollar (regional average: -0.1%), while the 10-year Malaysian Government Securities (MGS) yield increased by 7 bps (regional average: +7 bps).
Meanwhile, FBM KLCI traded higher by 2.5% amid foreign equity inflows (regional average: +3.1%).
Banks liquidity and funding positions are strong to support intermediation
Banking system continues to record healthy liquidity buffers with the aggregate Liquidity Coverage Ratio at 153.7% (January 2024: 160.2%). The aggregate loan-to-fund ratio remained broadly stable at 81.8% (January 2024: 81.6%). Asset quality in the banking system remained intact Overall gross and net impaired loans ratios remained stable at 1.6% and 1% respectively.
Loan loss coverage ratio (including regulatory reserves) continues to be at a prudent level of 120% (January 2024: 120.8%) of impaired loans, with total provisions accounting for 1.5% of total loans.
