Interest Rate Targeting Monetary Policy

5764 Words Feb 26th, 2011 24 Pages
This paper attempts to discuss and examine the importance and impact of monetary policy which is being conducted by a central bank in the country. The analysis covers the target of monetary policy in Malaysia. It also compares two monetary policy (interbank interest rate) which was conducted by central bank of Malaysia and fed funds rate which was practiced by Federal Reserve Bank of New York.
It concentrates further some factors that may have relation to changing in monetary policy. Base lending rate, BNM treasury bills and ringgit value against dolar are also highlighted in the discussions. This paper was done with help of our lecture by guiding and assisting how to get the genuine data. Besides, review of past study
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 To compare the fed funds rate of U.S and with the overnight rate (interbank interest rate) of Malaysia in twenty years time.
 To predict the changes of fed fund rate in U.S and overnight policy rate in Malaysia.
 To check how far is the profit margin between base lending rate and interbank interest rate.
Literature review
Generally, monetary policy is defined as the process in which the central bank controls the money supply to have a control over interest rate which will lead to growth in economy and stability in the county.
Since the economy in Malaysia was not so well early in 2009, the bank Negara Malaysia had reduced the OPR as a policy to improve the economic activities in Malaysia. Fortunately, the policy has really worked out resulting in significant improvement in domestic economy and is now on a recovery stage. At this stage, the bank Negara Malaysia aims at normalizing monetary conditions and preventing the risk of financial imbalances that could undermine the economic recovery process.
According to Bank Negara Monetary Policy Statement, "At the Monetary Policy Committee meeting last week, Bank Negara Malaysia decided to raise the Overnight Policy Rate to 2.25 percent. The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 2% and 2.50 % respectively"
In the case of U.S, the federal bank of New York also
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