: This paper investigates the importance of external factors in the domestic interest rate determination of Malaysia and measures the Malaysian financial market openness and domestic speed of adjustment to changes in foreign factors by capturing the effects of the Asian Financial Crisis in 1997. To achieve the objective, Autoregressive Integrated Moving Average (ARIMA) forecast of the inflation rate and Ordinary Least Square (OLS) regression were estimated using quarterly data for the period 1990:Q3-2005:Q3. Results of the study indicate that external factors were dominant in the domestic interest rate determination in the pre-crisis period. However, in the post-crisis period, domestic variables appear to affect the most. In addition, in post-crisis period, Malaysian domestic market was found to be apparently less open with slower speed of foreign influence.