MALAYSIA could see a modest increase in its benchmark interest rate next year as the countrys economic outlook improves.

The likelihood of the US Federal Reserve (Fed) to begin unwinding its easy money policy by the end of this year is also a factor that could drive Malaysias key rate higher in 2022.

Our interest rates have been kept low for quite some time already in order to support our flailing economy. But with the economy expected to be on a stronger footing next year, we think Bank Negara will begin to look at raising the overnight policy rate (OPR), one fund manager tells StarBizWeek.

In addition, with rising inflation in recent months, real rates have turned negative; therefore, theres a need to adjust the OPR higher, he adds.

The Feds decision to tighten its monetary policy, the fund manager argues, could also put pressure on Bank Negara to tighten to manage the risk of capital outflows.

Adopted from The Star, Potential Rate Hike Next Year. 4 Sept 2021.

1. " MALAYSIA could see a modest increase in its benchmark interest rate next year as the countrys economic outlook improves. (1st paragraph)

Analyse any THREE (3) monetary instruments that can be used by central bank to influence the money supply in the economy to achieve the targeted interest rate above. (9 marks)

b. Based on the article above, analyse any THREE (3) factors that would encourage central bank of Malaysia to increase interest rate in the coming year. (9 marks)