Monetary Policy by Indonesia, Malaysia and Thailand in the Era of Excess Forex Reserves

Abstract

Prior to the 1997 crisis, the three economies, namely Malaysia, Thailand and Indonesia, used either fixed or heavily managed exchange rate policies. There is a great deal of debates regarding the reasons of the East-Asian crisis by which these countries were more or less affected. The issue of an ‘ideal exchange rate policy’ is also hotly debated. However, after a decade, the problem of crisis has been transformed from a ‘crisis’ to a ‘surplus.’ The monetary authorities of these economies are facing the challenges of managing the reserves. Both the Bank of Thailand and Malaysia has moved from fixed to market-determined exchange rate system. Malaysia, however sticks to the fixed exchange rate policy. All the three economies have moved from base money to inflation targeting. They are using different instruments to set short-term interest rate. The Monetary Policy Committee (MPC) of the Bank of Thailand has set-up the rate of interest within the targeted zone of 3.5 per cent (per year).Other two economies are, however, not so rigid in maintain inflation-target.