The role of Bank Negara Malaysia

By July 24, 2017 Engineering

In Malaysia, the function of the cardinal bank is entrusted with Bank Negara Malaysia. Its duty extends to the development of the fiscal substructure and take parting in the overall economic development of the state.

Today, Bank Negara Malaysia focuses on the three pillars of cardinal banking, viz. pecuniary stableness, fiscal stableness and the payments system. In add-on, importance is given to the developmental function of Bank Negara Malaysia, in regard to economic direction, institutional edifice and the development of the fiscal system.

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By and large, the functions of Bank Negara Malaysia are:

To assure pecuniary stableness and a sound fiscal construction

To move banker and fiscal advisor to the authorities

To publish currency and maintain militias safeguarding the value of the currency

The influence the recognition state of affairs to the advantage of the state

Monetary Stability

Monetary stableness refers to the stableness of the value of the Malayan currency, which is the Malayan Ringgit ( MYR ) . As the state ‘s pecuniary authorization, Bank Negara Malaysia is responsible to keep pecuniary stableness. Therefore, the best manner to guarantee that the value of the ringgit is preserved is by guaranting monetary value stableness. This is important to guarantee that rising prices in the state remains low and stable. By keeping pecuniary stableness through appropriate alterations in pecuniary policy, Bank Negara Malaysia ensures that rising prices is kept low and that the buying power of the ringgit is non diminished.

Why is pecuniary stableness so of import?

Monetary stableness is of import because when there is pecuniary instability, monetary values are either lifting ( rising prices ) or falling ( deflation ) and this can ensue in deformations and sabotage the long-run economic growing chances of the state. If rising prices is excessively high, people will be concerned about the buying power of their money balances. This would ensue in greater demand for existent assets like houses and belongingss, which are thought to be more ‘inflation-proof ‘ . There would be involvement to put in productive capacity of the economic system. Similarly, rescuers would be less inclined to keep nest eggs in the fiscal system if they expect that the value of the nest eggs would be diminished. Fixed income earners will happen that they are able to purchase less goods and services and will see a decrease in their criterion of life. High rising prices would besides do exports more expensive to aliens and this would cut down the fight of the exports. Persistently high rising prices would therefore cut down the growing potency of the economic system.

Similarly, when the rate of rising prices is negative, monetary values are falling and concerns find their net incomes shriveling. They may cut down their costs by cutting outgo and lay off staff. Workers in bend would hold less money to pass and therefore cut down disbursement, ensuing in farther decrease in the demand for goods and services. This creates a barbarous circle of falling monetary values and undertaking demand ensuing in a contraction in the degree of overall economic activity.

When there is monetary value stableness, the future value of nest eggs and the hereafter returns on investings are preserved, this gives savers the inducement to salvage while investors have greater assurance to undertaker productive activities. Increased investing leads to an addition in the productive capacity of the economic system and increased economic activity leads to new occupation creative activity. Therefore, by keeping pecuniary or monetary value stableness, it creates a contributing environment that allows the economic system to spread out in a sustainable mode at near to its possible.

Bank Negara Malaysia conducts its pecuniary policy by act uponing the degree of involvement rates

When the economic system is overheating and the menace of rising prices is high, Bank Negara Malaysia will increase the bank modesty such as cut down the rate for Statutory Reserve Requirement ( SRR ) or Statutory Liquidity Requirement ( SLR ) . Therefore, pecuniary policy will be tightened by retreating financess from the banking system and raising involvement rates. The higher involvement rates will promote people to salvage more and pass less. It would besides do it more expensive for people to borrow money. This will do ingestion and investing to decelerate down to a degree that is more sustainable and cut down the chance for high rising prices. Conversely, when economic conditions are weak or rising prices is low, Bank Negara Malaysia will increase the bank modesty. For illustration, Bank Negara Malaysia will increase the rate for statutory Reserved Requirement ( SRR ) or Statutory Liquidity Requirement ( SLR ) . Therefore, financess will be injected into the banking system to cut down involvement rates. With lower involvement rates, disbursement and adoption would increase. The ensuing addition in ingestion and investing would excite farther economic activity, taking to higher income, employment and economic growing.

Fiscal Stability

Fiscal stableness is an environment whereby establishments in a fiscal system are strong and can go on to run into their contractual duties without break or without any external aid from other Bankss. Market participants can besides confidently enter into minutess at monetary values that do non fluctuate over short periods when there have non been any alterations in market basicss.

Governments that contribute to fiscal stableness are:

Why is fiscal stableness of import?

Fiscal stableness creates a contributing environment for concerns to transport out their activities and for rescuers and investors to come in into short-run or long term contracts. Since the fiscal sector has a cardinal function in advancing economic growing, it is of import that the fiscal system is strong, resilient and efficient in call uping nest eggs and set abouting loaning activities. It is critical that this intermediation procedure continues uninterrupted even in periods of economic troubles.

As the state ‘s regulative authorization, one of the cardinal functions of Bank

Negara Malaysia is to develop a sound banking system that responds to the altering demands of the economic system and society, a system that is made up of strong and resilient fiscal participants and well-functioning fiscal markets. In order to continue fiscal stableness, Bank Negara Malaysia has besides been entrusted to modulate and develop the insurance sector to be an effectual mobilise of long term nest eggs and supply broad scope of insurance merchandises while protecting the involvement of policy proprietors. The overall aim of fiscal stableness has been achieved non merely through the preparation of strong legal, regulative and supervisory model, but besides through the development and strengthening of new establishments and system substructure.

Regulatory regulations have been continuously enhanced with the acceptance of international criterions to instil appropriate hazard direction system to enable fiscal establishments to set about their intermediation map efficaciously. The passage of new Torahs such as the Banking and Financial Institutions Act in 1989 and the Insurance Act in 1996 has enhanced Bank Negara Malaysia ‘s regulative authorization over the fiscal system. Similarly, the passage of the Islamic Banking Act in 1983 has given Bank Negara Malaysia extra authorization to oversee new types of establishments, viz. the Muslim Bankss. In add-on, to avoid widespread failure and keep public assurance in the fiscal system, peculiarly the banking system, Bank Negara Malaysia besides extends the loaner of last resort installation ( whereby banking establishments in demand of financess could come to Bank Negara Malaysia to sell their securities ) to help banking establishments in covering with short-run liquidness jobs.

Bank Negara Malaysia ‘s regulative and supervisory function was extended in 1988 when the insurance industry was brought under the supervising of Bank Negara Malaysia. Recently, this regulative inadvertence was farther extended to six development fiscal establishments with the passage of the Development Financial Institutions Act in 2001. In add-on, a separate statute law was enacted to protect the fiscal sector from being used as a conduit for money laundering activities. The Anti-Money Laundering Act ( AMLA ) came into force in January 2002 and Bank Negara Malaysia was appointed as the competent authorization to implement the national anti-money laundering programme.

Regulatory regulations are complemented with regular scrutinies of fiscal establishments and their close monitoring.

The on-site and off-site supervising of all fiscal establishments under the horizon of Bank Negara Malaysia is a critical procedure in guaranting fiscal stableness. Bank Negara Malaysia adopts the risk-based supervising attack, whereby fiscal establishments are assessed and monitored based on hazard profiles and adequateness of hazard direction systems. Preemptive schemes are formulated to turn to any inauspicious tendency or failing that could endanger the stableness of an single fiscal establishment or the fiscal system as a whole. The supervisory model is continuously enhanced in line with alterations in the economic environment.

Last but non least, Bank Negara Malaysia besides maintains close relationship with supervisors in other states to guarantee that developments abroad, particularly in states where Malaysia has a banking presence and states of foreign Bankss in Malaysia, would non endanger the stableness of the Malaysian fiscal system.

Developmental Role

As a cardinal bank in an emerging economic system, Bank Negara Malaysia has an of import developmental function. This function ranges from developing the necessary establishments and market substructure for the development of a modern and strong fiscal system to lending to the strengthening of the foundation of the economic system. In beef uping the fiscal market substructure, Bank Negara Malaysia has built a strong payment system. These systems are regularly “ upgraded ” to turn to the impact of engineering on the banking system.

Furthermore, to advance a good recognition civilization among banking establishments, Bank Negara Malaysia besides operates the Central Credit Reference Information System. The first of its sort in this part, this system collects and disseminates recognition information on all borrowers. This allows banking establishments to do informed determinations on loan applications.

Payment system

The payments system is an of import portion of the fiscal system. It provides a agency of reassigning financess between parties and for commercial minutess to be conducted efficaciously and expeditiously. Bank Negara Malaysia is entrusted with the function of guaranting that the payments system of the state is stable and operates swimmingly.

Why is the smooth operation of the payments system of import?

This is because, any failure of a fiscal establishment to settle its duties in a timely mode would ensue in spill over effects, ensuing in other fiscal establishments non being able to settle their fiscal duties.

Bank Negara Malaysia has the of import function of guaranting the safety and efficiency of the payments system. Bank Negara Malaysia therefore:

Other duties of Bank Negara Malaysia

Bank Negara Malaysia serves as the economic and fiscal advisor to the Government and besides participates in international meetings to beef up co-operation with other states every bit good as to discourse the of import issues from the position of emerging market economic systems.

Role of economic advisor

As the economic and fiscal advisor to the Government, Bank Negara

Malaysia analyses and assesses the developments in the international and domestic economic system and highlights the countries that need to be addressed. Bank Negara Malaysia besides undertakes economic intelligence and surveillance and carries out prognosiss on the economic status of the state. Based on these appraisals, Bank Negara Malaysia nowadayss policy recommendations at regular briefings to the Minister of Finance every bit good as at assorted economic policy devising forums at the national degree.

Role of fiscal advisor

Bank Negara Malaysia does non supply funding to the Government. However, as the fiscal advisor to the Government, Bank Negara Malaysia gives regular advice to the Government on the direction of its domestic and external debts and the footings and timing of Government loan programmes. Bank Negara Malaysia besides acts as the agent for the Government in dialogues and reasoning of loan understandings. Bank Negara Malaysia is besides responsible for trading, registering, colony and salvation of Government securities through its computerised systems ( RENTAS, FAST and BIDS ) .

Extra findings

Our group has found an article from The Edge. This article is about nightlong policy rate ( OPR ) in Malaysia. This article mentioned that Bank Negara Malaysia has decided to keep the nightlong policy rate at 2.75 % after its first pecuniary policy commission meeting. In its sentiment, the bing pecuniary policies are consistent with the current economic growing and rising prices chance.

Nightlong policy rate is an involvement rate set by Bank Negara Malaysia ; it is target rate for twenty-four hours to twenty-four hours liquidness operations of the cardinal bank. Therefore, any alterations in OPR rate might hold impact on base loaning rate, short term involvement rate, fixed sedimentation rate, foreign exchange rate and etc. Presently the statutory modesty demand rate is 1 % in the state. Although bank Negara had decided to keep the OPR rate but extra policy tools such as SRR and macro-prudential loaning steps might be considered if there were hazard of macroeconomic and fiscal instability.

Harmonizing to the statement by Bank Negara Malaysia, planetary economic system is retrieving and displacement in planetary liquidness has resulted important flow of capital into emerging economic systems, in peculiar Asiatic part. This tendency has brought hazard to macroeconomic and fiscal stableness. Furthermore, rise in planetary trade goods and nutrient monetary values besides affected domestic nutrient monetary values and overall rising prices. In Malaysia, rising prices rate has reached 2.2 % in December 2010 after authorities reduced subsidies on sugar and fuels. Economist foresees that monetary values are expected to increase in approaching months in 2011 due to lifting planetary trade goods monetary values. However, economic expert do non anticipate OPR rate to increase in the first half of 2011 unless rising prices rate escalated quickly.


In a nutshell, BNM is committed to develop a well-organized fiscal market that has efficient information and colony system, orderly trading and a good codification of behavior among the participants. Presently, new merchandises and computerized system are bit by bit being introduced by BNM to add deepness and efficiency in the money and foreign exchange markets.


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