KUALA LUMPUR (Jan 31): The ringgit appreciated by1.2% against the greenback in December 2018, driven by market expectations of a slower pace of rate hikes in the US, Bank Negara Malaysia (BNM) said today.

This compares with a decline of 0.1% in the ringgit's value against the US dollar in November, due to the slower pace of monetary policy normalisation in the US, said BNM.

The ringgit had appreciated 0.38% against the US dollar to 4.0905 as at 4.20pm today, compared with Wednesday's close of RM4.1062. The local currency had depreciated 5.28% over the past year.

BNM, in a statement today, also said the domestic financial market had improved on better regional sentiments, supported by easing concerns surrounding global trade disputes.

"The FBM KLCI increased by 0.6% in December 2018 as investors rebalanced their portfolio investments into regional assets amid uncertainties over the US political and economic outlook following the US government shutdown and the downward revision in growth forecast by the US Federal Reserve," said the central bank.

In the Malaysian government securities (MGS) market, the five-year MGS yield declined by 9.5 basis points in December, despite non-resident outflows in the MGS market, following active buying by domestic institutional investors that increased their MGS holdings by RM2.7 billion during the month, said BNM.

In the banking system, BNM said financial institutions are well-positioned to withstand severe macroeconomic and financial shocks, with excess capital buffers of RM143 billion as at December 2018.

"The slight increase in capital adequacy ratios were partly attributable to an increase in ordinary shares arising from a dividend reinvestment scheme," it said.

BNM also noted net financing growth continued to support economic activity.

On an annual basis, the net financing recorded slower growth of 6.3% in December 2018 as compared with 7.3% recorded in November last year.

This was mainly due to a moderation in the growth of outstanding corporate bonds to 8% (November: 10.5%), reflecting the high base effect in December 2017.

The outstanding business loan growth also moderated to 5.4% in December compared with 6.3% growth recorded in November, mainly driven by the construction and real estate sectors.

Household loans grew at a slower pace at 5.6% against 5.7% in November.

BNM also noted that the retail segment gained traction with the Index of Wholesale and Retail Trade (IOWRT) recording a higher growth of 8.4% in November (Oct: 8%) as the consumer spending was unfazed by the reintroduction of sales and service tax.