Introduction
Bank Negara Malaysia (BNM), the central bank of Malaysia started off in 1959 and is fully owned by the Government of Malaysia. The main role and function of the BNM is to implement the monetary policy in order to control inflation as well as to maintain financial system stability in the country (Bank Negara Malaysia, 2012). In order to control the economy and perform its function, the BNM can influence interest rates in the economy through the overnight policy rate (OPR).
OPR is the overnight interest rate charge on loans between financial institutions and this is controlled by BNM. “The Overnight Policy Rate (OPR) will be the indicator of the monetary policy stance. The OPR will have a dual role – as a signaling device to indicate the monetary policy stance and as a target rate for the day-to-day liquidity operations of the Central Bank.” (Bank Negara Malaysia, 2013). Since May 2011, the OPR remained at 3.00% until the last Monetary Policy Committee (MPC) meeting held on the 10th of July 2014, the central bank decided to raise the OPR by 25 basis point to 3.25% due to strong growth in exports and …show more content…
As mentioned earlier, GDP has grown by 6.4%, higher than the forecasted GDP in the second quarter of 2014. Ranked the highest in the region, household debt made up more than 80% of GDP in Malaysia (Liew, 2014). Household debt, including consumer debt and mortgage loans is the amount of money owed by consumers in the household. Both situations signaled to the government that there are increasing amounts of money circulating in the economy which may not be a good sign. “If too much money is out there, it tends to cause inflation, or the devaluation of the dollar. Too little money causes deflation, which can lead to a recession” (Ushistory.org, 2014). Currently, according to the graph below, the ringgit is experiencing
Bank Negara Malaysia (BNM), the central bank of Malaysia started off in 1959 and is fully owned by the Government of Malaysia. The main role and function of the BNM is to implement the monetary policy in order to control inflation as well as to maintain financial system stability in the country (Bank Negara Malaysia, 2012). In order to control the economy and perform its function, the BNM can influence interest rates in the economy through the overnight policy rate (OPR).
OPR is the overnight interest rate charge on loans between financial institutions and this is controlled by BNM. “The Overnight Policy Rate (OPR) will be the indicator of the monetary policy stance. The OPR will have a dual role – as a signaling device to indicate the monetary policy stance and as a target rate for the day-to-day liquidity operations of the Central Bank.” (Bank Negara Malaysia, 2013). Since May 2011, the OPR remained at 3.00% until the last Monetary Policy Committee (MPC) meeting held on the 10th of July 2014, the central bank decided to raise the OPR by 25 basis point to 3.25% due to strong growth in exports and …show more content…
As mentioned earlier, GDP has grown by 6.4%, higher than the forecasted GDP in the second quarter of 2014. Ranked the highest in the region, household debt made up more than 80% of GDP in Malaysia (Liew, 2014). Household debt, including consumer debt and mortgage loans is the amount of money owed by consumers in the household. Both situations signaled to the government that there are increasing amounts of money circulating in the economy which may not be a good sign. “If too much money is out there, it tends to cause inflation, or the devaluation of the dollar. Too little money causes deflation, which can lead to a recession” (Ushistory.org, 2014). Currently, according to the graph below, the ringgit is experiencing