Based monetary policy implication was behind the Group

Based
on most of the latest economic analyst views, economic news, journals and
updates, Malaysia’s monetary policy by the Bank Negara earlier this year
reported to favour stability in the economic situation of the country. It was
reported so as the Bank Negara has focused more on the economics basics that is
to preserved and maintain the economics basics instead of enhancing economic
growth directly.

            According to Jason Loh (2017), those
Bank Negara options clearly opposite with the other central banking options in
the more developed countries where monetary policy used directly as the major
role in uplifting or enhancing the economic growth, and therefore the monetary
policy by the Bank Negara viewed as a more cautious and depending to current or
forecast future economic situations in the country. Therefore, it can be
considered that the Bank Negara is playing the second important role after the
major role of the fiscal policy in developing the economics in Malaysia.

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            Furthermore, Bank Negara performance
in the monetary policy implication was behind the Group of 7 (G7) central banks
and European Central Bank (ECB) especially during the Great Financial Crisis
(GFC). Even though Malaysian government compliance with the World Bank
requirement, depicted in the fiscal target of 3% and the decrement of the
debt-to-GDP ratio which supposed to cause bigger monetary policy
implementation, the performance of the Bank Negara was not there yet. However,
the fact that monetary policy played a secondary role to fiscal policy has been
proven to help in maintaining and balancing Malaysia’s economic growth during
those GFC period and the momentum consistency to overcome economic fluctuations
after the period.

            The economic situations and uncertainties
in the country make it difficult for the government and the policy makers to
propose and implement a suitable policy targeting and to find balance between
the fiscal and monetary policy. Therefore, the relationship between the
interest rates and the economic growth in terms of GDP will be examined
throughout this study.

            Other than that, it was also quite
recently when Bank Negara Malaysia reported that the inflation would probably
be within the average 3% to 4% this year (2017), an increment from 2.1% in last
year (2016). Malaysia’s inflation also reported to hike earlier this year to
above 4.5% said due to the impact of higher fuel costs. The inflation rate
record was the highest in more than eight years of Malaysia’s inflation rate
history and has surprisingly exceeded the 3.9% median inflation rate estimated
by the Bloomberg survey (Bloomberg and Reuters, 2017).

Even though it was said due to the higher
fuel cost, the central bank did not confirmed that price pressures were
alarming in the economy, however they rather suggested that the inflation would
be faster accelerating if the oil prices were at the same high level. The high
and increasing level of inflation might not favours the Bank Negara as it would
be quite complicated for the central bank to always ensure the interest rate
were at a low level in aid for the economy to keep running in stability when
the inflation was alarming. Thus, the relationship between the inflation rate
and the economic growth in terms of GDP will be examined throughout this study.