Malaysia has held rates but raised the proportion of deposits banks must keep with the central bank, as signalled by the bank. The reserve requirement will double from 1 to 2 per cent, effective April 1. The overnight policy rate remains at 2.75 per cent.
Raising the reserve requirement has become a favoured alternative to raising rates in countries wanting to tighten without attracting certain types of destabilising short-term capital inflows. Bank Negara Malaysia described the use of the reserve requirement as “pre-emptive” and “an instrument to manage liquidity and not a signal on the stance of monetary policy”. From the Bank:
Malaysia’s central bank has raised the overnight policy rate again, by 25bp to 2.75 per cent. The floor and ceiling rates of the corridor for the OPR have been correspondingly raised to 2.50 percent and 3.00 percent respectively. Bank Negara Malaysia described their policy stance as “accommodative and supportive of economic growth”, and cited steady recovery and moderate inflation as reasons behind the move.
A major difference between mainstream and Islamic debt looks set to be removed. There will be significant winners and losers – consumers and investors, respectively – but also, possibly, a structural shift within debt markets.
Malaysia’s central bank is drafting rules to regulate the use of ibra*, Islamic rebate, which will affect $95bn Islamic finance assets (a fifth of total banking assets or roughly half of GDP).
In Western banking, someone taking a loan is liable for the principal and the interest as it is accrued. If the loan ends early – through default or early payment – that person is typically liable for the interest accrued to date.
Not so in Islamic financing.
The central bank of Malaysia has increased the overnight policy rate from 2 to 2.25 per cent, with the floor and ceiling rate trading band moved to 2 and 2.5 per cent. Kuala Lumpur had hinted heavily at the last rate meeting, at which rates were held. Recovery is thought to be entrenched now, with strong growth and improving internal and external demand. The Malaysian economy grew by 184bn ringgit ($54.6bn) in Q4, up 6.5 per cent on the previous quarter.
Growth in Malaysia looks likely to have outperformed expectations in Q4 and the central bank governor has hinted at a rate rise.
Central bank governor Zeti Akhtar Aziz told Reuters: “We are already clearly on the path of economic recovery. We are no longer in extraordinary circumstances. We have come out of that kind of environment.” She underlined that any adjustment would be a normalisation and not a tightening, saying: “Our policy will continue to be accommodative of economic growth.”
The Malaysian central bank has kept the overnight policy rate at 2 per cent. In an upbeat statement, the Bank said inflation had turned positive, the economy was expanding, and domestic indicators were good. Uncertainty remained, however, with the recovery of developed economies, and so Bank Negara Malaysia said: “Monetary policy would remain accommodative to ensure threat the economic recovery is well entrenched.”