SRR cut strengthens liquidity, unrelated to OPR: Bank Negara governor

New Straits Times

23-05-2025

KUALA LUMPUR: Bank Negara Malaysia's move to lower the statutory reserve requirement (SRR) is a proactive measure to ensure sufficient liquidity in the country's financial system.
In an exclusive interview with TV3, Bank Negara governor Datuk Seri Abdul Rasheed Ghaffour explained that the SRR reduction is crucial in managing current uncertainties in the financial markets.
It also aims to ensure that the banking system remains ready to support the financing needs of businesses and individuals.
He also addressed reports linking the SRR reduction with a potential adjustment in the overnight policy rate (OPR) during the upcoming monetary policy committee (MPC) meeting in July.
"SRR is not a monetary policy tool like the OPR. It is a liquidity management tool to ensure there is enough liquidity in the banking system, so banks can continue providing financing to the economy," he explained.
The SRR reduction does not indicate a lack of liquidity in the banking ecosystem, but rather serves to further strengthen the country's financial system.
"Even though there is sufficient liquidity in the banking system, we are taking this step to provide added assurance. When banks have surplus cash in their assets, they are more capable and likely to extend loans," he added.
The governor said Bank Negara will continue to monitor developments and take appropriate action to maintain stability in the country's financial markets.
"We will ensure the financial system remains stable and markets stay orderly, without being overly exposed to significant fluctuations. This is crucial to support economic growth and investor confidence," he added.
With a holistic and data-driven policy approach, Bank Negara remains committed to ensuring Malaysia's economy continues to grow in a stable and sustainable environment.
The current SRR rate of one per cent was last implemented in 2009 during the financial crisis, and the most recent SRR reduction was in 2020 during the Covid-19 pandemic.
Abdul Rasheed clarified that Bank Negara's current monetary policy is aligned with Malaysia's economic growth outlook and is intended to stimulate growth without putting upward pressure on inflation.
The current OPR level of three per cent, he said, is based on assessments of inflation prospects and economic growth.
"What we see is the need to maintain a balance between economic growth and the inflation rate. The objective of our monetary policy is to achieve sustainable economic growth in a stable price environment," he explained further.
In addition to the OPR, Abdul Rasheed said there are various other instruments available to support the national economy, including government fiscal policies and Bank Negara's market operations.
"For example, we can ensure the foreign exchange (forex) market remains orderly without excessive volatility, so that companies can make business decisions with confidence," he said.
The governor said the central bank will continue to monitor current conditions and take necessary measures to maintain the stability of the country's financial markets.
Meanwhile, he said Malaysia's economy remains resilient despite the Middle East geopolitical tensions and rising global trade tensions from potential US tariffs.
Abdul Rasheed Ghaffour said Malaysia's economic growth forecast for this year is expected to remain largely unchanged, underpinned by the country's strong and diversified economic fundamentals.
"In my view, due to the many factors that can support the country's economic growth, the current projection of 4.5 per cent to 5.5 per cent growth will only shift slightly, InsyaAllah not significantly," he said.
Earlier, Bank Negara was reportedly reviewing the gross domestic product forecast, with an official announcement expected within the next one to two months.
Abdul Rasheed said the International Monetary Fund had revised its global economic growth forecast down from 3.3 per cent to 2.8 per cent, while global trade growth projections were also reduced from 3.2 per cent to just 1.7 per cent.
He said the updated forecast would only be finalised once there is greater clarity on US tariff policies and the outcome of trade negotiations between Malaysia and the world's largest economy.
Abdul Rasheed lauded the government's proactive approach to provide targeted support to segments affected by tariff policies, while preserving room for fiscal and monetary policy intervention, if needed.
"At this point, there is no need to implement such policies, but we have the space to do so if necessary," he added.
He also highlighted the government's structural reform efforts, such as reducing the fiscal deficit and promoting high-quality investments into the country.
This means these investments will create high-value jobs and subsequently generate higher income.