Bank Negara Malaysia Case Study

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Since Malaysian economic fundamentals were not week at pre-crisis in 1997/1998. The former Prime Minister Dr Mahathir was neglected to the traditional policy response to financial difficulties which seek assistance from the International Monetary Fund (IMF). On 19 June 1998, UMNO General Assembly, Dr Mahathir said that if we have to resort to the international Monetary fund assistance, the conditions imposed by the IMF will required us to open our economy to foreigners. There will not be any bumiputera quota as the New Economic Policy (NEP) is an injustice, and unacceptable to their liberal democracy. Therefore, the Malaysian leadership opted for the second alternative to confront this policy dilemma. The lynchpin of this radical policy choice was capital controls, which were expected to set the stage for fixing the exchange rate…show more content…
The 3 month inter- bank rate with BNM policy rate had been raised to a historical high of 11 by February 1998 to defend the exchange rate, was reduced in a number of stages to 4 percent by early 1999. The margin that banks could charge their customer above the base lending rate was reduced from 4 percent to 2.5 percent. The default period for reclassification of bank loans was changed back to 6 months which was reduced to 3 month in January 1998, this is to reducing the pressure on the banks to set aside capital against nonperforming loans. The others expansionary monetary policy measure included relaxed of credit limits on lending by commercial banks and financial companies for purchase of property and shares, a scheme for providing soft loans for purchase of cars, a special loan scheme for assisting smaller industries and low income group, and relaxing credit limits on credit

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