Zeti Akhtar Aziz: Enhancing financial integration in the new Nusantara Luncheon address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Malaysia-Indonesia Investment & Finance Summit, Jakarta, 18 June 2007. *  *  *  Ladies and Gentlemen: There has been a long history that transcends several centuries in which international trade flourished in the Malay archipelago . The South East Asia region contained the important maritime routes for the trade between the East and West. This had brought with it, robust economic growth and regional prosperity. Today, the South East Asian region – the Nusantara region continues to be one of the world's most dynamic regions. Since the turn of this century, our economies have re-emerged to be amongst the fastest growing in the global economy, amidst new challenges and fundamental economic and financial developments. Our steadfast reform and restructuring efforts have rewarded us with strengthened macroeconomic fundamentals and sound and stable financial systems. These efforts continue to be augmented by the strong the foundations that the region possesses, namely abundant natural and human resources, high savings rates and the ingrained aptitude to persevere and rise to the challenge. The ASEAN 5 group of economies that includes Indonesia, Malaysia, the Philippines, Thailand and Singapore have now for an extended period of time been on a steady growth path. A more recent phenomenon in this decade, has been the increased economic and financial linkages within the region spurring further regional economic and regional financial integration.

We always kept the possibility, while providing the banking system with unlimited amounts of liquidity, to change the interest rates of all our facilities. And, obviously, this remains true today. Because asset purchases played a very limited role in our operational framework, the unprecedented expansion in our balance sheet was never a source of concern. By essence, repo facilities are self expiring and self exiting. A vivid illustration will come in July when our one year long term operation expires and our balance sheet will contract by a third. A very useful complement comes from the systematic sterilization of our more recent asset purchases. Our interventions have had significant effects on monetary and market conditions in the Euro zone. Liquidity conditions improved markedly. The decrease in policy rates, from 4.25 % in September 2008 to 1 % in May 2009 was largely passed-though to bank lending. This return to more favourable conditions has supported economic recovery. 2  BIS Review 76/2010  During this period, four main factors have contributed to the success and efficiency of our operations:   First, our credibility. At no time during the crisis have inflation expectations significantly deviated from our definition of price stability. This was most apparent, and crucial, during those months when headline inflation stayed in negative territory, the output gap was itself strongly negative and the risks of deflation could have materialized. With inflationary expectations strongly anchored around 2%, the “zero lower bound” never really was a problem.