MARC views BNM’s assessment of the prospects of the economy as realistic. We concur with BNM’s outlook of real GDP growth slowing down to less than 5% in 2015 (MARC forecast: 4.7%) due to lacklustre external demand, decelerating domestic demand growth, as well as tighter lending standards. With regard to inflationary pressures, MARC anticipates inflation to be higher post-GST. We foresee CPI growth to be in the range of 3-3.5% in 2015, slightly higher than BNM’s forecast of 2-3%.

 

On the issue of household indebtedness, our concern remains on the fact that the bulk of household debt (50.5%) belongs to households with monthly income levels of RM5,000 and below. Another concern is whether measures meant to induce further deleveraging in the household sector are effective enough. As for corporate leverage, we concur with BNM’s findings that overall leverage (based on debt-to-equity ratio) of the Malaysian business sector remains intact and is below the level observed prior to the Global Financial Crisis (GFC). MARC does not foresee any systemic risks, thanks to the resilient banking system, and views the BNM’s commitment to the implementation of the Basel III Liquidity Coverage Ratio (LCR) as a positive move.

 

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