Reserves Management and FX Intervention
12 Pages Posted: 13 Dec 2019
Date Written: October 31, 2019
The shift in global monetary policy from quantitative easing (QE) to the subsequent policy normalisation has led to volatile two-way capital flows for the emerging market economies (EMEs). Many EMEs’ central banks have faced considerable challenges in maintaining monetary and financial stability given the limitations of traditional macroeconomic policy tools and relatively small financial markets. This necessitated a pre-emptive FX intervention policy and capital flows management to contain the risks from volatile capital flows. To shed some light on these issues from Malaysia's perspective, the paper first highlights the Bank’s motivation for holding reserves, followed by an assessment of the reserve adequacy framework. The paper then expands on the principles behind the Bank's FX intervention activities as well as the reserves management strategies. Finally, the paper concludes by highlighting the importance of international cooperation among EMEs and market development initiatives in addressing the perennial challenges of large capital flows.
Full Publication: Reserve Management and FX Intervention
Keywords: capital flows, reserves accumulation, reserve adequacy, FX intervention, liquidity management, volatility, market development, reserve management
JEL Classification: E58, E61, F31, F32
Suggested Citation: Suggested Citation