Author

  • Zetty Zahureen Mohd Yusoff

    • Faculty of Business Management, UiTM, Cawangan Selangor Kampus Puncak Alam, Malaysia
    • Malaysia

  • Nik Rozila Nik Mohd Masdek

    • Faculty of Business Management, UiTM, Cawangan Selangor Kampus Puncak Alam, Malaysia
    • Malaysia

  • Adibah Alawiyah Osman

    • Faculty of Business Management, UiTM, Cawangan Selangor Kampus Puncak Alam, Malaysia
    • Malaysia

  • Ariq Syazwan Azahar

    • Swift Logistic TA Sdn Bhd, Malaysia
    • Malaysia

  • Norhusniyati Husin

    • Faculty of Business Management, UiTM, Cawangan Selangor Kampus Puncak Alam, Malaysia
    • Malaysia

  • Zahirah Hamid Ghul

    • Faculty of Business Management, UiTM, Cawangan Selangor Kampus Puncak Alam, Malaysia
    • Malaysia

Abstract

The overnight interbank rate is an essential factor for central banks to impact economic activity and preserve financial stability. It refers to the rate at which banks lend and borrow short-term funds from one another, often overnight. The overnight interbank rate plays a crucial role in the transmission mechanism of monetary policy since changes in the rate can affect the cost of borrowing and the availability of credit, which in turn impacts consumption, investment, and economic activity. According to Bank Negara Malaysia (2021), overnight transactions in the interbank market run in parallel to the existing Kuala Lumpur Interbank Offered Rate (KLIBOR). This study intends to explore time series data from 1991 to 2021 to identify the relationship between dependent and independent variables based on the ordinary least square method (OLS). Meanwhile, the study investigates whether macroeconomic variables influence the overnight interbank rate in Malaysia. Therefore, this study uses the determinant of economic indicators of unemployment (UR), domestic private credit (DGR), gross domestic product (GDP), foreign exchange (FER), and inflation (I). The data comes primarily from the World Bank and the Federal Reserve Bank (FRED). Based on results demonstrate that unemployment and inflation have the most significant impacts on monetary policy. The reason why unemployment has an impact on economic growth is that high unemployment frequently indicates resource underuse, pointing to the need for stimulative monetary policy (such as decreasing interest rates) to promote investment and expenditure and promote economic growth. To slow down the economy and cut expenditure, central banks typically raise interest rates in response to rising inflation. On the other hand, declining inflation may lead to rate reductions to boost the economy. This is a significant element of inflation in monetary policy.

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References

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How to Cite

Mohd Yusoff, Z. Z., Nik Mohd Masdek, N. R., Osman, A. A., Azahar, A. S., Husin, N., & Ghul, Z. H. (2024). The Determinants of Monetary Policy in Malaysia: Impact on Economic Activity. Information Management and Business Review, 16(3S(I)a), 135-143. https://doi.org/10.22610/imbr.v16i3S(I)a.4205

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Copyright (c) 2024 Zetty Zahureen Mohd Yusoff, Nik Rozila Nik Mohd Masdek, Adibah Alawiyah Osman, Ariq Syazwan Azahar, Norhusniyati Husin, Zahirah Hamid Ghul (Author)

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Vol. 16 No. 3S(I)a (2024) Supply Chain Resilience, Islamic Finance & Micro-Influence View issue contents

Published

2024-10-27

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