Reserve Requirements

Malaysia: Reserve Requirements, AFC

Purpose

During monetary tightening, to “enhance the efficiency of the intermediation process and not to provide additional liquidity to the system” (BNM 1998a); during monetary easing, to “ease liquidity in the banking system” (BNM 1998h)

Key Terms

  • Range of RR Ratio (RRR) Peak-to-Trough
    13.5%–4% of eligible liabilities
  • RRR Increase Period
    Pre-crisis (set at 13.5% on June 1, 1996)
  • RRR Decrease Period
    February 1998 – September 1998
  • Legal Authority
    Central Bank of Malaysia Act 1958 (Revised—1994) and Banking and Financial Institutions Act 1989
  • Interest/Remuneration on Reserves
    Unremunerated
  • Notable Features
    BNM first cut the SRR during monetary tightening but cut the SRR further as it switched to monetary easing; Malaysia concurrently replaced a longstanding liquid asset requirement with a liquidity management framework
  • Outcomes
    MYR 22 billion (USD 5.8 billion) injected into the banking system with the initial cuts, offset by decreased direct lending to the interbank market; MYR 15 billion injected with the later cuts

Key Design Decisions

Purpose1

Part of a Package1

Administration1

Governance1

Communication1

Assets Qualifying as Reserves1

Reservable Liabilities1

Computation1

Eligible Institutions1

Timing1

Changes in Reserve Requirements1

Changes in Interest/Remuneration1

Other Restrictions1

Impact on Monetary Policy Transmission1

Duration1

Key Program Documents

Key Program Documents

Key Program Documents

Key Program Documents

Key Program Documents

Key Program Documents

Taxonomy

Intervention Categories:

  • Reserve Requirements

Countries and Regions:

  • Malaysia

Crises:

  • Asian Financial Crisis 1997