Malaysia’s broad money supply (M3) expanded at its fastest pace in more than four years in June, driven by a sharp increase in foreign currency deposits and stronger savings growth, reinforcing expectations that domestic liquidity will remain supportive of economic activity despite moderating credit expansion.
According to Kenanga Research, broad money (M3) grew 6.7% year-on-year (YoY) in June, up from 5.8% in May, marking the strongest annual growth in 52 months.
The research house said the acceleration was largely fuelled by an 18.7% jump in foreign currency deposits, compared with 6.0% in May, alongside stronger growth in savings deposits, which rose 5.0% from 4.1% previously. Together, these two components contributed 2.8 percentage points to overall M3 growth, more than double the 1.2 percentage points recorded a month earlier.
On a month-on-month basis, money supply increased 1.2%, adding RM30.6 billion during June, following a RM12.2 billion increase in May.
Kenanga attributed the stronger money supply growth primarily to a recovery in Malaysia’s net foreign assets.
Net foreign assets rebounded 7.0% YoY in June after contracting 0.2% in May, as both the banking system’s foreign assets and Bank Negara Malaysia’s foreign asset position returned to positive growth.
Banking system foreign assets rose 10.4%, reversing a 0.3% contraction in May, while BNM’s net foreign assets increased 5.8%, compared with a marginal decline previously.
Meanwhile, growth in net claims on the private sector eased to 6.3% from 6.6%, reflecting softer loan expansion and slower growth in financial institutions’ securities holdings.
Net claims on the government also moderated to 5.1% from 6.1% previously.
Despite improving liquidity, bank lending growth continued to moderate.
Outstanding loans expanded 5.5% YoY in June, down from 5.7% in May and marking the slowest pace in three months.
Working capital loans and residential property financing both recorded slower growth, reducing their combined contribution to overall lending expansion.
Sector-wise, lending to the electricity, gas, steam and air-conditioning sector slowed sharply to 11.1% from an exceptionally strong 45.9% in May, while financing to the finance and insurance sector eased to 2.5% from 4.8%.
Household lending also moderated slightly to 5.0%.
On a monthly basis, loans increased 0.4%, below the long-term average of 0.5%, adding RM10.8 billion compared with RM12.4 billion in the previous month.
Deposits, however, recorded a much stronger performance.
Total deposits grew 6.0% YoY in June, accelerating from 4.4% in May to the fastest pace in 37 months.
The increase was led by an 18.9% surge in foreign currency deposits and a rebound in repurchase agreements, which returned to positive growth after 14 months of contraction.
Savings deposits also strengthened to their fastest growth in 18 months.
Overall deposits rose 1.7% month-on-month, adding RM45.3 billion during June, nearly four times the RM11.9 billion recorded in May.
Despite the moderation in lending during June, Kenanga maintained its full-year 2026 loan growth forecast of between 5.0% and 5.5%, compared with 4.8% recorded in 2025.
The research house said credit demand continues to be supported by resilient domestic consumption, strong electrical and electronics exports, ongoing investment realisation and government initiatives aimed at improving financing access for small and medium enterprises.
These include the RM5 billion MSME financing facility and an additional RM5 billion allocation under the Skim Jaminan Pembiayaan Perniagaan (SJPP).
However, Kenanga expects loan growth to moderate in the second half of the year as global economic growth slows, business cost pressures rise and the effects of post-pandemic normalisation gradually fade.
Kenanga also reiterated its expectation that Bank Negara Malaysia will maintain the Overnight Policy Rate (OPR) at 2.75% throughout 2026.
While renewed geopolitical tensions and higher commodity prices could lift inflationary pressures, the research house said domestic inflation remains well contained and downside risks to economic growth persist due to external uncertainties.
As such, it expects the central bank to retain its neutral monetary policy stance to support economic growth while ensuring inflation expectations remain anchored.
