by RAHIMI YUNUS/ pic by TMR FILE
THE central bank announced today that the Statutory Reserve Requirement (SRR) ratio has been slashed from 3.50% to 3.00% effective Nov 16, 2019, the first such cut in more than three years.
Bank Negara Malaysia (BNM) said the decision to reduce the SRR was made to maintain sufficient liquidity in the domestic financial system.
“This will continue to support the efficient functioning of the domestic financial markets and facilitate effective liquidity management by the banking institutions,” the central bank said in a statement.
The central bank said the SRR is an instrument to manage liquidity and is not a signal on the stance of monetary policy. The Overnight Policy Rate (OPR) is the sole indicator of the monetary policy said the central bank.
The last time BNM cut the SRR was in January 2016.
According to the central bank’s website, the SRR rate is the proportion that banking institutions are required to maintain balances in their Statutory Reserve Accounts (SRA) equivalent to a certain proportion of their eligible liabilities (EL).
The SRR may be raised to manage the significant build-up of liquidity, which may result in financial imbalances and create risks to financial stability.
Conversely, BNM may lower the SRR if necessary to support the transmission of monetary policy rates to retail rates.
On Tuesday, BNM decided to maintain the OPR at 3% after a Monetary Policy Committee meeting.