These changing global dynamics, interacting with market’s reactions to potential US rate hike, may cause volatile ups and downs of financial markets. BIS central bankers’ speeches  1  I will not discuss these at length. Rather, at this juncture, the key question is how to design or adjust policy frameworks to cope better with these financial spillovers while preserving monetary policy independence. Undoubtedly, there is no single recipe that fits all central banks. Thus the aim of my talk is to offer a central bank’s overall perspectives and Thailand’s experiences on policy framework in managing capital flow and exchange rate stability. I will also touch on some beneficial policy cooperation among regional countries. A brief background of Thailand’s monetary policy framework Let’s begin with a broad perspective of Thailand’s monetary policy framework. The Bank of Thailand (BOT) has been conducting monetary policy under “Flexible Inflation Targeting” framework since May 2000. As a pragmatic response to the failure of a pegged exchange rate system, transparency of the policy making process under IT was deemed appropriate for Thailand, particularly after the 1997 Asian Financial Crisis. Under this regime, price stability is the overriding and explicit objective, while economic growth and financial stability are also taken into policy deliberation. The policy interest rate is our main tool in achieving the mandate. With managed-float exchange rate regime, the Thai baht is generally allowed to be determined by the market.

Bank Negara Malaysia also looks forward for a more active role by all shareholders, including the non-  BIS Review 73/2006  1  controlling shareholders, in the transformation of the new takaful operators into efficient and world-class players capable of competing against the best in both the domestic and international marketplace. Ladies and Gentlemen, On the regulatory front, as the financial services industry transitions to a more deregulated and market-driven environment, the regulatory and supervisory approach will continue to evolve into one that is more principle and risk-based. The regulatory initiatives will also continue to emphasise competition, efficiency, and innovation whilst maintaining financial stability. For the takaful industry in particular, the consultative paper on the principle-based guidelines on the takaful operational framework will soon be issued. The aim is to establish the parameters within which the takaful operators operate their business, whilst allowing for the different takaful models currently adopted by the respective takaful operators to continue to operate. This consultative process is a further reflection of the approach adopted to take into consideration the feedback from the industry players in designing appropriate regulatory framework and thus towards balancing the interests of the various stakeholders. The industry can also expect to see progress on the development of international best practices for the takaful industry by the Islamic Financial Services Board (IFSB) in the near future. An important step towards this direction has been taken with the recent establishment of an IFSB working group to develop supervisory standards on corporate governance.