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Monetary Policy

Monetary Policy in 2016 is focused on ensuring steady expansionof the domestic economy. In the first 6 months of 2016, the Malaysian Economy grew 4.1 % with inflation averaging at 2.7 %. In the efforts to ensure sufficient liquidity in the domestic financial system and to support the orderly functioning of the domestic financial markets, the SRR was reduced from 4.00 % to 3.50 % effective on 1 February 2016. The OPR, which was held unchanged sinceJuly 2014, was also reduced by 25 basic points to 3.00 % on 13 July 2016. The adjustment to the OPR was intendedto ensure that the domestic economy continues on a steady growthpath amid stable inflation, supported by continued healthy financial intermediation in the economy. Overall, the accommodative monetary policy will enable the economy to remain on track.

Interest rates in the banking system was revised downward following the OPR adjustment in July 2016. Consequently, the weighted base rate of commercial banks was lowered to 3.62% as at end July 2016. Similarly the weighted average lending rate (ALR) and interest rate on savings deposit of commercial banks decreased by nine basic points to 5.31% and six basic points to 0.98%, respectively. Meanwhile, the interest rate on fixed deposits of 1-month to 12-month maturities eased with the rates ranging between 2.90% and 3.06% following the OPR cut. As inflation subdued, the real rates of return for all fixed deposit tenures remained favourable.

Monetary aggregates expanded at a slow pace during the first seven months of 2016. M1 or Narrow money grew 2% to RM 354.2 billion as at end July 2016. Likewise, M2 or broad money continued to expand at a slower rate of 2.3% to RM 1,597.8 billion as of end July 2016. The moderation in growth was mainly influenced by the continued inssuance of equity by banks and the reclassification of Islamic investment Accounts which took place in July 2015. The M3 was also weighed down by large outflow of portfolio funds, specifically through greater diversification of investments by domestic institutional investors as well as narrowing of the current account surplus. During the period, net foreign assets recorded a decline, largely reflecting foreign exchange revaluation effects arising from the strengthening of the ringgit against major currencies.

Exchange Control Policies

The exchange control policies in Malaysia are directed at monitoring the settlement of payments and receipts as well as encouraging the use of the country’s financial resources for productive purposes. There is generally free mobility of inward and outward movement of funds, subject to the statistical requirement of completing Forms P for payment and Forms R for receipts, for transfers exceeding the equivalent of RM10,000. There are also a few prudential regulations covering approval requirements for large borrowings from abroad as well as overseas investments by residents.

The following are the major exchange control rules:

A)   Current Account Transactions –

(a) Payments for Import of Goods and Services - There are no restrictions on payments to non-residents for imports of goods and services. Such payments must be made in foreign currencies.

(b) Export Proceeds - • All export proceeds are required to be repatriated back to Malaysia in accordance with the payment schedule as specified in the sales contract, which in any case should not exceed six months from the date of export. • Export proceeds must be received in foreign currency and must be sold for ringgit or retained in approved foreign currency accounts with resident commercial banks, with up to an aggregate overnight limit of between USD1 million and USD10 million.

(c) Import and Export of Currency by Travellers - • Import and export of ringgit up to RM1,000 and export of foreign currency up to an equivalent of RM10,000 is freely permitted. Resident travellers are required to obtain permission and declare in the Traveller’s Declaration Form (TDF) when they carry currency notes and/or traveller’s cheques as listed below. – Resident travellers carrying into or out of Malaysia, ringgit notes exceeding RM1,000. – Residents carrying out foreign currency notes including traveller’s cheques exceeding the equivalent of RM10,000. Approval is given within one day of application. • Non-residents are free to bring in any amount of foreign currency and/or traveller’s cheques. Declaration in the Disembarkation Card issued by the Immigration Department is only required for amounts in excess of the equivalent of USD2,500. • Non-residents must also declare ringgit exceeding RM1,000 being brought into or out of Malaysia.

B)   Capital Account Transactions –

a)        Foreign Direct Investment - • Foreign direct investors are freely allowed to repatriate their investments, including capital, profits, dividends and interest.

b)       Investment Abroad by Residents - • Residents, other than commercial banks and approved merchant banks, are required to seek prior approval from the Controller to remit funds in excess of RM10,000 for overseas investment purposes. Consideration of applications is based on a set of transparent criteria. • Commercial banks and approved merchant banks are freely permitted to invest abroad as long as they comply with the Banking and Financial Institutions Act, 1989 and their approved net open position limit. Remittance for investments abroad must be made in foreign currency. 

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