The SRR is a monetary policy
instrument available to BNM to manage liquidity and hence credit creation in
the banking system. It is used to withdraw or inject liquidity when the
excess or lack of liquidity in the banking system is perceived by
BNM to be
large and long-term in nature.
SRR is the amount of money set aside by banks (all commercial, merchant,
investment, islamic banks) to be placed in their Statutory Reserve Accounts
with BNM with zero interest. By lowering the SRR, the banks will have a
reduced cost of funds, and can therefore help to preserve their profit
margins by lending out the liquidated money and earn interest.
A reduction in SRR will inject a certain amount of liquidity into the
financial system, which is expected to be lend out by the banks to finance
more economic activities in the market.