KUALA LUMPUR (BLOOMBERG, REUTERS) - Malaysia ordered lenders to set aside less cash as reserves while keeping the key interest rate steady as policy makers seek to add more money in the financial system amid weakening growth.
Bank Negara Malaysia reduced the statutory reserve requirement ratio to 3.5 per cent from 4 per cent effective Feb. 1, it said in a statement in Kuala Lumpur Thursday.
It held the overnight policy rate at 3.25 per cent, a decision predicted by all 20 economists surveyed by Bloomberg News.
"The decision to reduce the SRR is undertaken as part of a comprehensive effort by Bank Negara Malaysia to ensure sufficient liquidity in the domestic financial system, and to support the orderly functioning of the domestic financial markets," the central bank said in a statement.
The SRR is a monetary policy instrument to manage liquidity and credit creation in the banking system.
The central bank said it has relied on its monetary operations, including the reverse repo facility, to provide liquidity to the banking system as net external outflows reduced the amount of liquidity in the system. As of Jan. 21, this amounted to 40 billion ringgit, it said.
A slump in crude is hurting government revenues for oil- exporting Malaysia and Prime Minister Najib Razak is expected to revise growth forecasts and cut operating expenditure to keep 2016's fiscal deficit target in check.
The country's outlook is also clouded by an economic slowdown in China and the accompanying slide in the yuan that has unnerved financial markets.