Macroeconomic Determinants of Interbank Money Market Rate in Malaysia
An efficient money market in a country is important in ensuring the liquidity of the country. Banks are the key players in the money market sector, and thus, interbank transactions can have important effects on the implementation of monetary policy. The interbank money market rate is the rate of return charged for the interbank lending activities. The volatility of the interbank rate would affect the revenues and transaction costs of banks. The findings are hoped to be useful tools for banks in Malaysia to apply in their decision makings in order to remain competitive in the interbank money market. This study includes both the Conventional Interbank Money Market (CIMM) and Islamic Interbank Money Market (IIMM) rates. This study aims to examine the effects of macroeconomic variables on interbank money market rates in Malaysia. In this study, the Ordinary Least Squares (OLS) multiple regression estimation is used to determine the effects of the loan rates, money supply, inflation rate, economic growth, stock market and exchange rate on the interbank money market rates in Malaysia. The results showed that loan rates and economic growth are significant factors in determining both the CIMM and IIMM rates. Money supply is found to be a factor only in IIMM ate, while inflation is only a factor in CIMM. In conclusion, banks in Malaysia would have to monitor the interest or loan rate and economic condition in setting their interbank rate to one another.
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