Among the major role of the Bank is the prudent conduct of monetary policy, which has seen generally low and stable inflation for decades and thereby, preserving the purchasing power of the ringgit. The Bank is also responsible for bringing about financial system stability and fostering a sound and progressive financial sector. There is now in place a well diversified, comprehensive and resilient financial sector, that is able to meet the increasingly sophisticated needs of consumers and businesses, and which has become a growth driver in the economy.
The Bank also plays a significant developmental role, including development of financial system infrastructure with major emphasis placed on building the nation's efficient and secured payment systems as well as the necessary institutions (including Securities Commission, KLSE, now known as Bursa Malaysia and Credit Guarantee Corporation) which are important towards building a comprehensive, robust and resilient financial system.
The Bank actively promotes financial inclusion, which has led to improved access to financial services for all economic sectors and segments of society, thereby supporting balanced economic growth.
Other important roles of the Bank are being a banker and adviser to the Government, playing an active role in advising on macroeconomic policies and managing the public debt. It is also the sole authority in issuing currency as well as managing the country's international reserves.
Over the years, the roles and responsibilities of Bank Negara Malaysia have evolved and expanded. Today, Bank Negara Malaysia focuses on the three pillars of central banking, namely monetary stability, financial stability and the payment system. In addition, importance is given to the developmental role of Bank Negara Malaysia, in respect to economic management, institution building and the development of the financial system. To enable BNM to meet its objectives, it is vested with comprehensive legal powers under various Acts and Ordinances to regulate and supervise the financial system. These Acts include, among others, the Central Bank of Malaysia Act 1958 (Revised-1994), or CBA which is a revision of the CBO; the Islamic Banking Act 1983; Banking and Financial Institutions Act 1989 (BAFIA); Insurance Act 1996, etc, empowers the Central Bank to license and regulate institutions comprising of banks, finance companies, merchant banks, discount houses and money brokers, which constitutes the majority of market participants in the domestic bond market.
As the banker and adviser to the Government, Bank Negara Malaysia's business includes managing the liabilities of the Government, both in Malaysia and abroad. It advises the Government on its loan programmes, including planning the Government securities auction calendar, taking into considerations the terms and timing of the loans and issue of new types of securities. Bank Negara Malaysia participates actively in the monthly Cash Flow Committee meeting chaired by the Treasury to discuss the final details of Government securities issuances. In addition, Bank Negara Malaysia is responsible for trading, registering, settlement and redemption of Government securities through the automated trading and settlement system developed by the Central Bank.
It is stipulated in the Central Banking Act 1958 (Revised 1994, 2006) that Bank Negara Malaysia can provide temporary advances, known as "ways and means" advances, to the Government to cover any deficit in the budget revenue. However, there are legal limitations to the amount and the duration of loans that Bank Negara Malaysia can make available to the Government. As a result, the Central Bank's holding of MGS is minimal. Since 2005, Bank Negara Malaysia is allowed to purchase MGS from the primary and secondary markets based on market prices and to use the purchased securities for its open market operations.
To ensure that these purchases do not unduly influence or distort market prices, Bank Negara Malaysia's participation in the primary auction is based on the weighted average price of the auction and is limited to a maximum of 10% of the issue size. Similarly, the amount purchased in the secondary market is limited to 10% of the outstanding issued amount. As at end-June 2006, Bank Negara Malaysia holds less than 1% of total MGS outstanding amount.