Monetary and Financial Developments in January 2021

Headline inflation was less negative at -0.2%

• The less negative headline inflation in January (December 2020: -1.4%) was driven mainly by the increase in electricity inflation and higher domestic retail fuel prices during the month.
• These increases reflected the lapse in the effect from the tiered electricity tariff rebate and the rise in global oil prices respectively.
• Underlying inflation, as measured by core inflation , remained stable at 0.7%.

IOWRT improved in December, with a smaller contraction

• The Index of Wholesale and Retail Trade (IOWRT) improved in December 2020, recording a smaller annual contraction of 0.7% in December 2020       (November: -1.6%), due to the relaxation of CMCO, including the removal of restrictions on interstate travel and mobility on 9 December.
• The improvement was seen in wholesale trade, which declined marginally by 0.02% (November: -0.5%), while motor vehicles rose by 6.0% (November: 0.5%).
• Meanwhile, retail trade declined at a smaller rate (-2.9%; November: -3.2%).

Higher expansion in net financing

• Net financing expanded at 4.5% amid higher outstanding loan growth    (January: 3.8%, December: 3.4%) while outstanding corporate bond growth moderated slightly to 6.3% (December: 6.5%).
• Outstanding household loan growth was sustained at 4.9% (December: 5.0%) with disbursements remaining above historical average (January: RM28.8bn, 2017-19 monthly average: RM27.8bn).
• Outstanding business loan grew at 1.5% after a slower growth in December 2020 . The growth was contributed mainly by the SME segment.

Performance of domestic financial markets declined during the month

• In January, the performance of domestic financial markets was affected by a confluence of global and domestic factors.
• Globally, an uptick in US Treasury yields amid rising US inflation expectations pushed global bond yields higher, while supporting a broad strengthening of the US dollar. As a result, the 10-year MGS yield increased by 5.4 basis points and the ringgit depreciated by 1.0% against the US dollar, in line with regional trends.
• Domestically, investor sentiments were affected by the re-imposition of stricter containment measures to address rising COVID-19 infections. In particular, concerns on the impact of these restrictions to domestic corporate earnings weighed on equity market sentiments. As a result, the FBM KLCI declined by 3.7% during the month.

Banking system liquidity remained supportive of financial intermediation

• Banking system liquidity coverage ratio (LCR) remained at a healthy level, despite a slight decline in January 2021 (December-20: 148.2%).
•   This was supported by higher holdings of marketable securities and placements with central banks.
•  Banks’ funding profile also remained stable amid sustained growth in deposits.

Banking system asset quality remains healthy

• Gross impaired loans ratio increased marginally to 1.60% in January 2021 (December 2020: 1.56%).
• Banks continued to pre-emptively identify loans with higher credit risks and set aside additional provisions against future potential losses to ensure their continued resilience.

See also:

Press release [PDF]

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