HEADLINE inflation increased to 4.7% last month from 4.4% in July, in line with market expectations, Bank Negara Malaysia (BNM) said.

The central bank said core inflation increased to 3.8% during the month versus 3.4% in July.

“The increase largely reflected higher prices for rental and food away from home. Notwithstanding the higher annual inflation, 10 of the 12 main Consumer Price Index categories registered moderating month-on-month increases,” BNM said in a statement today.

On net financing, the central bank said net financing grew by 6.1% as at end-August compared with 5.3% in July, driven by higher growth in both outstanding loans (August: 6.8%; July: 5.9%) and corporate bonds (August: 4.3%; July: 3.7%).

Outstanding household loans grew by 6.5% (July: 6.1%) amid steady growth across most purposes.

“Notably, growth in loan disbursements reflected sustained growth in loan applications, particularly for the purchase of houses and cars,” it said.

For businesses, growth in outstanding loans rose to 6.7% (July: 5.9%), mainly driven by the wholesale trade, manufacturing and the utilities sectors.

Credit flows to small and medium enterprises remained particularly forthcoming, with outstanding loan growth higher at 7.5% (July: 6.6%).

The central bank highlighted that the global financial conditions had tightened after the United States Federal Reserve reaffirmed its commitment to bring the US inflation down despite lower growth expectations.

“However, domestic financial market adjustments remained orderly amid low foreign exchange volatility and sufficient trading volume.

“The 10-year Malaysia Government Bonds yield increased by 10 basis points (bps), alongside the higher 10-year US Treasury bond yield (45.4 bps),” it said.

On the ringgit, BNM said the local currency has depreciated by 0.8% amid continued strong US dollar environment, while the FBM KLCI rose by 1.3%, supported by foreign inflows and stronger-than-expected second quarter Malaysia GDP growth.

“Banks’ capital position remained strong to withstand potential stress and continue supporting credit flows to the economy.

“This enabled some banks to sustain dividend payouts during the month. As at end-August, the banking system recorded excess capital buffers of RM126.7 billion,” it said.

BNM said the resilience of banks continued to be underpinned by sound asset quality, and overall gross and net impaired loans ratios remained broadly stable at 1.84% (July: 1.85%) and 1.1% (July: 1.2%), respectively.

Loan loss coverage ratio (including regulatory reserves) remained at a prudent level of 113.7% of impaired loans, with total provisions accounting for 1.8% of total loans.

As at end-August, the banking system recorded RM41.5 billion of total provisions and regulatory reserves. – Bernama, September 30, 2022.