Malaysia Monetary Policy


Central Bank raises interest rate and reserve requirement ratio

At its latest monetary policy meeting on 5 May, the Central Bank raised the overnight policy rate (OPR) by 25 basis points to 3.00%, in a decision that surprised most market analysts. Bank Negara Malaysia decided to resume monetary tightening after remaining on hold since July 2010, in order to contain inflationary pressures, which have picked up recently. At the current level, the monetary policy stance remains supportive of growth. The Central Bank cited higher commodity and energy prices as the main reasons behind the decision to hike rates. Moreover, strengthening private investment and robust private consumption may add further pressure on prices in the second half of the year. Additionally, the Central Bank considers that developments in Japan following the March earthquake will have a limited impact on the country. In a related move, the Central Bank announced a second increase so far this year to the statutory reserve requirement ratio from 2.00% to 3.00%, effective from 16 May. The decision was undertaken as a pre-emptive measure to manage the significant build-up of liquidity.

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