Malaysia operates Islamic money market
Malaysia operates Islamic money market
KUALA LUMPUR (AFP): Malaysia's central Bank Negara said
yesterday it had decided to use the Islamic interbank money
market as another avenue to influence liquidity in the banking
system.
"As and when the situation warrants, Bank Negara may conduct
its money market operations via the Mudharabah interbank
investments (Islamic papers) to provide liquidity in the market,"
the bank said in a statement.
The central bank decision, with immediate effect, changes its
previous policy of only intervening through the conventional
money market.
The decision was also aimed at boosting Malaysia's Islamic
interbank money market, which was launched in January 1994 under
Islamic principles of profit-sharing.
Malaysia was among the first few in the Moslem world to
introduce the Islamic money market, which followed the launch of
the Islamic banking system that now runs alongside mainstream
conventional banking practices.
While conventional banks charge interest, which in Islam is
forbidden, the Islamic banking system charges a fee or commission
for services and adopts a profit-sharing concept.
When the central bank intervenes, it either mops up from or
releases liquidity into the money market to determine the
liquidity level and influence the direction of domestic interest
rates or to stabilize the ringgit.
Since its inception, the Islamic interbank money market had
accumulated funds worth 9.6 billion ringgit (US$3.84 billion) at
the end of last year from 2.1 billion ringgit a year before, the
central bank said.
The amount is, however, still small compared to overall money
market operations, it said.
The central bank would from now on prescribe a minimum
benchmark for players to peg their Islamic money market rates for
a more attractive spread to spur more activity.
The benchmark would be the prevailing rate of the Malaysian
government investment issues plus a spread of 0.5 percent, the
bank said.
"Without an appropriate benchmark, the Islamic money market
rates declared on maturity tend to be volatile and unrealistic
and have driven players away, " a central bank official said.