Malaysia Banking System: M1, M2 Rate of Change and its relationship with GDP in Malaysia's banking system. - Insights

These statistics illustrate the historical rate of change in Malaysia’s M1 and M2 money supply and their relationship with GDP growth. Tracking M1 (narrow money) and M2 (broad money) provides valuable insights into liquidity trends and monetary policy impact. Their correlation with GDP helps assess how changes in the money supply influence economic activity and overall financial health.

2014-2025 | Monthly | Bank Negara Malaysia

The statistics show the historical rate of change of M1 and M2 in Malaysia's banking system.

M1 and M2 are measurements of the money supply.
M1 includes coins and notes in circulation plus demand deposits (current accounts)in banks.
M2 includes M1 plus narrow Quasi-money (Savings deposits + Fixed Deposits + NIID + Repos + Foreign Currency Deposits)

When the YoY changes for M1 are faster than M2, it is usually known as the golden cross. When YoY changes for M1 cross above M2, it means funds are flowing from the banking system into the market. A golden cross happens when corporations and households are willing to spend more, which will spur the economy.

When M1 increases, it typically indicates an expansionary monetary policy by the central bank. This can lead to increased liquidity in the financial system, potentially stimulating economic activity through higher consumer spending and business investment. However, it also raises the risk of inflation if the increased money supply outpaces the growth of real output.

On the other hand, changes in M2 reflect broader trends in financial markets and savings behaviour. An increase in M2 may indicate higher levels of savings and investment, which can support long-term economic growth. However, if M2 grows too rapidly, it could signal excessive risk-taking or asset bubbles in financial markets, posing risks to financial stability.

M2 and GDP Growth: Increases in M2 can stimulate economic growth by providing more liquidity for spending and investment. When M2 grows at a healthy pace relative to GDP, it indicates that there is sufficient money available to support economic activity. However, if M2 growth outpaces GDP growth significantly, it may suggest excessive liquidity in the economy, potentially leading to inflationary pressures or asset bubbles.

M2 over GDP Ratio: The ratio of M2 to GDP provides insights into the liquidity of the economy relative to its size. A higher M2/GDP ratio suggests that there is more money in circulation relative to the size of the economy, which can indicate a higher level of financial intermediation and liquidity. However, an excessively high M2/GDP ratio may signal financial imbalances or risks, such as potential overheating of the economy or unsustainable credit expansion.