Bank Negara Malaysia (BNM) has launched the Malaysia Islamic Overnight Rate (MYOR-i), the first transaction-based Islamic benchmark rate in the world.

In a statement today, the central bank said MYOR-i will replace the Kuala Lumpur Islamic Reference Rate (KLIRR), which will be discontinued with immediate effect.

“MYOR-i is aimed to spur Shariah-compliant financial products innovation development which will further deepen Malaysia’s Islamic financial market as it is developed in accordance with the Principles for Financial Benchmarks.

“It will be a catalyst in driving Islamic financial product innovation and creating transparency for market players to negotiate and standardise their financial contracts, thus achieving efficient pricing across all financial instruments,” said BNM.

It added that the establishment of MYOR-i will help to deepen the onshore Islamic financial market and enhance its role in financing real economic activities in Malaysia.

According to the central bank, the MYOR-i is administered and calculated by BNM.

Meanwhile, BNM said its Shariah Advisory Council (SAC) has also confirmed that MYOR-i is Shariah-compliant.

“It is a volume-weighted average rate of return on Shariah-compliant unsecured overnight ringgit interbank transactions.

“This includes BNM’s Islamic overnight monetary operations,” it said.

BNM noted that the new Shariah-compliant instruments may be included in the future as MYOR-i is currently based on the Commodity Murabahah instrument.

BNM said it will conduct periodic reviews of MYOR-i to ensure that it remains robust and representative of conditions in the underlying market.

“On any given Kuala Lumpur business day, the MYOR-i will be published on BNM’s website at 12 pm on the following business day,” said BNM.

The central bank said to develop the MYOR-i, it collaborated with the Financial Markets Committee (FMC) and the Association of Islamic Banking and Financial Institutions Malaysia-Financial Markets Association Malaysia (AIBIM-FMAM), as well as the Islamic Market Technical and Development Committee (IMTDC).