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Malaysia Monetary Policy Essay

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Monetary policy is referred to a measurement of the money stock that control by central bank (Rasche & Williams, 2007). In the perspective of policymakers, monetary policy refer to an action taken by central bank to influence or target short term interest rate or nominal exchange rate (Rasche & Williams, 2007). In general perspective, monetary policy is a fundamental action to control money supply and promote economy (Rasche & Williams, 2007). In Malaysia, in order to improve the efficiency of the intermediation process in providing financing to productive economic activities as well as to enhance the efficiency of the operations of the money market to allow interest rates to reflect underlying liquidity conditions the monetary policy has …show more content…

Thus, Malaysia are heavily rely on monetary stability and financial stability. In order to maintain the value of the Malaysia currency (monetary stability), BNM take the responsibilities to maintain the price stability and to ensure the inflation is remains low and stable and the purchasing power of ringgit is not diminished (BNM, n.d.). Furthermore, financial stability is one of key elements to concern on. Financial stability refers to a strong financial system where institution can continue to meet their obligations without interruption or external assistance. The market confidential is raise because the transaction price is not fluctuated easily, the market participant can confidently enter into the transaction (BNM, …show more content…

To eliminate inflation, BNM will increase the target OPR and sells government bonds in order to reduce decrease the money supply in the market, where banks reduce loans or charge high interest rate to meet the obligation by decreasing in investment will lead to decreasing in aggregate planned expenditure. Thus, aggregate demand will decrease and the real GDP falls to the potential GDP whereas the price falls then inflationary gap will be eliminated (UK Essays,

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