Large shifts in global liquidity have resulted in significant capital flows into emerging economies, and in particular, into the Asian region. The consequent build-up of liquidity in the domestic financial system, if not managed carefully, could create risks to macroeconomic and financial stability. In the case of Malaysia, the assessment is that the increase in liquidity in the domestic financial system has thus far been well intermediated. The decision to raise the SRR is now undertaken as a pre-emptive measure to manage the risk of this build-up of liquidity from resulting in macroeconomic and financial imbalances.
The increase in the SRR is thus an instrument to manage liquidity and not a signal on the stance of monetary policy. The Overnight Policy Rate (OPR) is the sole indicator used to signal the stance of monetary policy, and is announced through the Monetary Policy Statement released after each Monetary Policy Committee meeting.