Malaysia experienced a long period of financial development, accompanied first by exchange rate targeting and then by exchange rate management with more active monetary policy; the Asian financial crisis led it to introduce a peg to the USD plus capital controls for a few years, which were followed by strong monetary policy arrangements which did not, however, include a formal inflation target.
|Years||Targets and attainment||Classification|
|1974-84||currency pegged to dollar then from September 1975 to undisclosed basket (based on trade and settlement currency, different from IMF calculations of effective rate), with 2.25% margins exceeded occasionally, in market where banks operate more or less freely; monetary policy instruments initially direct but becoming indirect, with growth of money and bond markets; policy directed in part to social objectives; fiscal policy mostly under control;||loose exchange rate targeting LERT|
|1985-98||exchange rate policy more ‘active’ from late 1984 though still peg of sorts to same basket, no mention of margins; further gradual financial liberalisation, monetary instruments more indirect; fiscal deficits often large but dominance avoided; capital inflows hard to manage; Asian financial crisis mid-97 leads to capital outflows, large depreciation, crisis measures to save banks; position worsened by Russian crisis mid-98||loosely structured discretion LSD|
|1999-2005||(temporary) capital controls from September 1998 and currency pegged to USD, permitted spreads 2% only; forex transactions and financial sector in general quite controlled, but forex market has some autonomy, it’s more target than fix, and margins are narrow||full exchange rate targeting FERT|
|2006-14||July 2005 exchange rate peg replaced by managed float against undisclosed basket; exchange controls now mostly ended; new interest rate framework (from April 2004) allows central bank to control overnight rate and banks to set own rates; development of macroprudential policies post-2008; wider role for Monetary Policy Committee after new central bank law 2009; central bank has viable ‘dual mandate’ for price stability and growth; ongoing disagreement between authorities and IMF re misalignment and exchange rate flexibility||well structured discretion WSD|
Selected IMF references: RED 1975 pp24-5; RED 1979 pp17-22; RED 1983 pp28-30, 50; RED 1985 p36; RED 1986 pp38-9, 64-5; RED 1988 pp32-5; SR 1989 p32; SR 1994 pp11, 15; RED 1999 pp13-18, 23-4; SR 2005 pp16-17, 24; SR 2011 pp7-9; SR 2013 pp15, 23; SR 2014 pp8-9.
Additional source: Ibrahim (2016).
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