HLIB Research highlighted that the latest monetary indicators in November 2024 were mixed.
PETALING JAYA: Analysts expect Bank Negara to keep the overnight policy rate (OPR) unchanged at 3% throughout 2025.
Hong Leong Investment Bank (HLIB) Research, in a report, stated that inflation is expected to gain momentum in 2025 due to domestic policy changes.
“These include the RON95 subsidy reform, expanded sales and service tax scope, and expected increase in electricity tariffs, along with sustained domestic growth and the US Federal Reserve’s recent hawkish signals, we think the central bank will stand pat and keep the OPR unchanged at 3% throughout the year,” it said.
HLIB Research also highlighted that the latest monetary indicators in November 2024 were mixed.
Narrow money supply (M1) rose at 4.9% year-on-year (y-o-y), while broad money supply (M3) moderated to 4% y-o-y.
Total leading loan indicators continued to improve, following a jump in loan applications and a rebound in loan approvals, the brokerage firm added.
However, loan disbursements declined further by 5.7% y-o-y in November last year, from a 4.4% y-o-y drop in October.
Deposit growth picked up at 3.6% y-o-y on the back of stronger foreign deposits.
Household deposits steadied at 3.8% y-o-y, but business deposits eased by 2.7% y-o-y.
Kenanga Research concurred that Bank Negara is likely to keep the OPR steady at 3% in 2025. “We believe the current stance is reasonably balanced between maintaining price stability and supporting the growth outlook,” it said in a note to clients.
Despite a lower inflation reading in November 2024 of 1.8%, Kenanga Research pointed out that the upside risks to price pressure remain for 2025.
“This is particularly due to the upcoming fuel subsidy rationalisation and higher household incomes from an increase in minimum wage and civil servants’ salary adjustments.”
As such, Kenanga Research revised its inflation forecast for 2025 to 2.7%, up from its 2024 estimate of 1.9%.
On the slowdown in M3 supply in November 2024, the research house attributed this primarily to slower growth in fixed deposits, which dragged the overall M3 growth.
However, the weakness was partially mitigated by an expansion in demand deposits, following the previous month’s sharp increase, adding RM16.7bil in November 2024.
Kenanga Research also attributed the lower M3 growth to slower net claims on government, private sector and foreign assets. The research house forecast loan growth at 5.5%-6% in 2024, compared to 5.3% in 2023, with steady momentum expected in 2025.
“November loan growth remained within target range, driven by a resilient domestic economy fuelled by a steady labour market and continued expansion in the services sector, especially retail and tourism. Hence, growth is on track to meet the year-end forecast,” it added.
