KUALA LUMPUR (July 29): Malaysia’s headline inflation is projected to remain within the 2.2% to 3.2% forecast range for the year, despite headline inflation for the month of June increasing to 3.4% from 2.8% in the previous month, said Bank Negara Malaysia (BNM).

This was mainly reflecting the higher core inflation of 3% in June from 2.4% recorded in May, with the rise 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,” the central bank said in a statement on Friday (July 29).

The month of June also saw exports register a robust growth of 38.8% from 30.4% in May to RM146.2 billion, which is the highest level of exports on record, reflecting continued strength across Malaysia’s export products, driven by strong global demand for manufactured exports and high commodity prices.

Export growth moving forward is expected to remain supported by continued external demand for semiconductors, albeit at a moderating pace due to slower global growth.

Additionally, BNM said net financing grew by 5% in June compared with 4.5% in May, driven by higher growth in outstanding loans of 5.6% in June compared with 5% in May, while outstanding corporate bond growth remained unchanged at 3.4%.

“Outstanding household loan growth increased across all loan purposes (June: 5.9%; May: 5%) reflecting higher growth in loan disbursements, especially for cars and houses.

“For businesses, outstanding loans grew at 5.8% [in June] from May at 5.4%, as growth in loan disbursements (June: 23%; May: 20.8%) outpaced that of repayments (June: 20%; May: 23.6%).

“By sector, the higher outstanding loan growth reflected stronger growth in wholesale and retail trade, and transport, storage and communication,” it said.

BNM highlighted that global financial market conditions tightened in June following the 75 basis points (bps) hike — the largest since 1994 in the US federal funds rate, amid elevated US inflationary pressures, which had subsequently raised concerns on the US and global economic growth outlook.

Nevertheless, the central bank said adjustments in the domestic financial markets remained orderly amid positive economic recovery prospects.

“Amid foreign portfolio outflows from the domestic bond market, 10-year Malaysian Government Securities (MGS) yields rose by 9 bps, a smaller increase compared to regional bond yields (average: 21.5 bps).

“[Meanwhile], the ringgit depreciated by 0.7% (regional average: -3.1%) in June amid broad US dollar strength, while the FBM KLCI declined by 8% (regional average: -7.1%),” it said.

Concurrently, BNM pointed out banks' liquidity and funding positions remain supportive of intermediation activities, with the banking system continuing to record healthy liquidity positions, with the aggregate liquidity coverage ratio at 148.4%.

This is as banks’ funding sources remained stable and supportive of credit intermediation in the economy amid sustained growth in deposits, while loan-to-fund ratio also remained stable at 81.8%.

In addition to that, BNM stressed asset quality in the banking system remained intact, even though overall gross impaired loans ratio increased slightly to 1.7% in June from 1.6% in May, yet net impaired loans ratios remained broadly unchanged at 1%.

“Banks continued to be prudent in loan provisioning to buffer against potential credit losses, with total provisions and regulatory reserves amounting to RM41.1 billion from May of RM40.7 billion.

“Total provisions stood at 1.8% as a share of total banking system loans and 108.5% of impaired loans,” it said.