KUALA LUMPUR: Bank Negara Malaysia raised the statutory reserve'' requirement (SRR) ratio from 1% to 2%, effective April 1, 2011 but it decided to maintain the overnight policy rate at 2.75%.
It said on Friday, March 11 that large shifts in global liquidity had resulted in significant capital flows into emerging economies, and in particular, into the Asian region.
BNM cautioned the consequent build-up of liquidity in the domestic financial system, if not managed carefully, could create risks to macroeconomic and financial stability.
'In the case of Malaysia, the assessment is that the increase in liquidity in the domestic financial system has thus far been well intermediated. The decision to raise the SRR is now undertaken as a pre-emptive measure to manage the risk of this build-up of liquidity from resulting in macroeconomic and financial imbalances,' it said.
BNM said the increase in the SRR was an instrument to manage liquidity and not a signal on the stance of monetary policy.
It explained the OPR was the sole indicator to signal the monetary policy stance which was released after the monetary policy committee meeting.
Meanwhile, in a separate statement after the MPC meeting, it said the Malaysian economy, based on latest available indicators suggest continued expansion in private consumption and sustained business spending activity amid more modest growth in external demand.
'Going forward, economic growth is expected to be moderate in the earlier part of the year and to improve during the course of the year, driven by strong expansion in domestic demand.
'Private consumption will continue to be an important driver of growth, supported by sustained employment and income growth. Private investment is also projected to strengthen, underpinned by the improving outlook for the domestic economy and further expansion of new growth industries,' it said.
On inflation, it said domestic headline inflation rose to 2.4% in January 2011 and it expected domestic prices to continue to rise in the latter part of the year
BNM said the factors for the increase would be mainly due to the significant increases in global commodity and energy prices.
However, it said some incipient signs that domestic demand factors could result in possible upward pressure on prices in the latter part of the year in line with the sustained expansion in economic activity.
The central bank said moving forward, the stance of monetary policy is expected to remain supportive of growth.
However, 'the degree of monetary accommodation may be reviewed' given the sustained growth in the economy and risks to inflation. It explained this was to ensure the sustainable growth of the Malaysian economy.
It said on Friday, March 11 that large shifts in global liquidity had resulted in significant capital flows into emerging economies, and in particular, into the Asian region.
BNM cautioned the consequent build-up of liquidity in the domestic financial system, if not managed carefully, could create risks to macroeconomic and financial stability.
'In the case of Malaysia, the assessment is that the increase in liquidity in the domestic financial system has thus far been well intermediated. The decision to raise the SRR is now undertaken as a pre-emptive measure to manage the risk of this build-up of liquidity from resulting in macroeconomic and financial imbalances,' it said.
BNM said the increase in the SRR was an instrument to manage liquidity and not a signal on the stance of monetary policy.
It explained the OPR was the sole indicator to signal the monetary policy stance which was released after the monetary policy committee meeting.
Meanwhile, in a separate statement after the MPC meeting, it said the Malaysian economy, based on latest available indicators suggest continued expansion in private consumption and sustained business spending activity amid more modest growth in external demand.
'Going forward, economic growth is expected to be moderate in the earlier part of the year and to improve during the course of the year, driven by strong expansion in domestic demand.
'Private consumption will continue to be an important driver of growth, supported by sustained employment and income growth. Private investment is also projected to strengthen, underpinned by the improving outlook for the domestic economy and further expansion of new growth industries,' it said.
On inflation, it said domestic headline inflation rose to 2.4% in January 2011 and it expected domestic prices to continue to rise in the latter part of the year
BNM said the factors for the increase would be mainly due to the significant increases in global commodity and energy prices.
However, it said some incipient signs that domestic demand factors could result in possible upward pressure on prices in the latter part of the year in line with the sustained expansion in economic activity.
The central bank said moving forward, the stance of monetary policy is expected to remain supportive of growth.
However, 'the degree of monetary accommodation may be reviewed' given the sustained growth in the economy and risks to inflation. It explained this was to ensure the sustainable growth of the Malaysian economy.
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