Malaysian bank raises SRR beginning Feb. 1
Malaysian bank raises SRR beginning Feb. 1
KUALA LUMPUR (AFP): Malaysia's central Bank Negara Saturday announced an increase in the statutory reserve requirement (SRR) of banking institutions with effect from Feb. 1.
Bank Negara said the SRR of commercial banks, finance firms and merchant banks would be raised by one percentage point from 11.5 percent to 12.5 percent of their eligible liabilities.
"The increase reflects the continuing commitment of Bank Negara in containing the rate of credit and monetary expansion and to contain inflationary pressures that may arise from excess liquidity in the system," it said in a statement.
Bank Negara said during the final quarter of 1995, there was a strong increase in credit expansion by the banking institutions generating an acceleration in monetary growth.
"At the end of December, monetary growth (M3) accelerated to an annual rate of 22.2 percent (13.1 percent in 1994)," it said, adding the increase was mainly due to the rapid rate of credit expansion by 28.1 percent compared to 14.7 percent in 1994.
However, the central bank said the adjustment in the SRR would have a marginal effect on the cost of funds.
Since 1989, the SRR has been raised eight times to check inflationary pressures, banking analysts told AFP.
The central bank raised the SRR three times in 1994 alone to check destabilizing foreign capital inflows when Malaysian inter- bank rates were much higher than the world rates.
Hike
The SRR was hiked from 8.5 percent to 9.5 percent on January 3, 1994 and it was again raised by a percentage point to 10.5 percent on May 16, and up to 11.5 percent on July 1.
The three increases absorbed an estimated 4.8 billion ringgit (US$1.92 billion) of excess liquidity from the banking system, analysts said.
"We expect the new increase will absorb between one billion ringgit and two billion ringgit," an analyst with a bank-linked securities company said.
He also said the increase in the SRR was long time coming after Bank Negara had intervened in the money market over the past few months.
The central bank mopped up short-term funds and pushed up domestic rates last week in an aggressive bid to defend the ringgit after the local currency came under heavy selling pressure.
"Now, the increase in the SRR is becoming more permanent rather than borrowing from the inter-bank market which the (central) bank has done in the past," he said.
The analyst said when Bank Negara borrowed short-term funds to mop up excess liquidity, it would still have to make payments at the expiry of the term and the funds would be injected back into the market.
The raising of the SRR was more logical as it "saves Bank Negara money", he said.
He expected the inter-bank rates to go up as funds would become more expensive and in turn, push up the base lending rates.