Question

Discuss the optimal conduct of monetary policy. What are the monetary policy strategy the Malaysia Central Bank id adopting today? 20 marks

Answer 1

Monetary Policy is the policy adopted by the highest monetary authority of the country to control either the interest rates payable for the short term borrowings or the money supply as as attempt to reduce inflation.
Interest on reserves constitute the gamut.The central bank diversify into 2 distinct tools which are used to raise short term policy rate.It can either increase the interest paid on reserves balance or it can reduce the quantity of reserve in the system.By using both these tools together and by widening the scope of reserve requirements,the central bank can achieve 2 objectives simultaneously i.e. it can direct the inflation output trade off,using a Taylor type rule or it can synchronize the externalities created by socially uncurbed short term debt on the part of financial intermediaries.

Malaysia Central Bank has maintained control over interest rates, exchange rates,and capital flows along with monetary policy to achieve multiple objectives including economic growth and financial stability.The main highlights of monetary policy are inflation,price stability.Malaysia uses monetary policy as an instrument for inflation volatility.Economic activity in Malaysia contracted very much in the 2nd quarter due to the global pandamic.some strategies content future outbreaks of the pandemic leads to more continuous weaknesses in labour market conditions and a weaker economic growth than expected.