Question

1a) Based on BNM or news report, explain the latest changes in the statutory reserve requirement (SRR) for Malaysia. Your explanation should also
include the changes to money supply and the possible impact of the change. [15 marks]
**explain in long paragraph **

1b) Based on your answer above, select an economic problem where that impact would work and explain what could happen. [15 marks]

Answer 1

The Statutory Reserve Requirement (SRR) is an instrument , that controls the liquidity . Banking decrees are stand in need of to sustain balances in their statutory reserve accounts analogous to a presice section of their entitled liabilities , this proportion existances the Statutory Reserve Requirement (SRR) rate . The Statutory Reserve Requirement (SRR) may be upraised to pull through the noteworthy build-up of liquidity , which may consequence in financial imbalances and create risks to financial fastness . Conversely , the Bank may lower the Statutory Reserve Requirement (SRR) if essential to support the transmission of monetary policy rates to retail rates . However , it is dominant to note that changes to Statutory Reserve Requirement (SRR) should not be construed as a signal on the stance of monetary policy, whereby the OPR is the sole indicator . The Statutory Reserve Requirement (SRR) is a monetary policy contrivance in circulation to Bank Negara Malaysia (the Bank) for impetus of liquidity administration . Effectively , banking institutions are nedded to maintain steadinesses in their Statutory Reserve Accounts (SRA) equivalent to a unquestionable proportion of their eligible liabilities (EL) , this proportion being the Statutory Reserve Requirement (SRR) rate .

The Statutory Reserve Requirement (SRR) petitions to authorized banks and expenditure banks , as defined under the Financial services Act 2013 Section 26 (2)(C) and section 26(3) of the central bank of Malaysia Act 2009 (CBA) essential reserves to be held by financial institutions at the Bank on accordance with the terms and conditions as may be determined by the Bank . In principle , Baning institutions must maintain in their SRA at the Bank , balances that are at least equal to the correlation Statutory Reserve Requirement (SRR) rate for banking institutions is 2.0% of EL .

Bank Negara Malaysia desires to declare that the Statutory Reserve Requirement (SRR) Ratio will be lowered by 100 basis points from 3.00% to 2.00% productive 20 March 2020. Additionally , each Principal Dealer is able to concede MGS and MGII of up to RM1 billion to some extent the SRR accoladence . This pliability to the Principal Dealers is obtainable until 31 March 2021. These amalgamated estimates will let out roughly RM30 billion worth of liquidity into the banking system . The Statutory Reserve Requirement (SRR) is an implement to jurisdiction liquidity and is not a signal on the stance of monetary policy . The Overnight Policy Rate (OPR) is the sole indication used to gesticulation the stance of monetary policy , and is reported through the Monetary Policy Statement liberated after the Monetary Policy Committee meeting .