It is a “porcupine” chart which shows the Bank’s official interest rate (the repo rate) as the thick black line together with forward interest rate curves at the time of successive Inflation Reports in 2002. Although by no means a perfect measure, the forward interest rate curve provides an idea of market participants’ expectations of future policy rates. During 2002 the Bank of England was able to achieve its goal by moving on a straight line with unchanged official interest rates. But, although interest rates scarcely moved, expectations of future interest rates – as embodied in the forward curve – did move around as the economic outlook changed from an expectation of a swift recovery to worries about a protracted slowdown. And in turn those changes in expected future rates affected activity and inflation. In other words, monetary policy was able to respond by less than would otherwise have been necessary because it affected expectations. 8  An excellent example is the recent book by Michael Woodford (2003) which builds on the ideas of the Swedish economist Knut Wicksell one hundred years ago that the key to price stability lies in thinking about the appropriate path for future nominal interest rates. BIS Review 36/2005  3  That pattern is sometimes described as “the market doing the work for us”. I prefer a different description. It is the framework of monetary policy doing the work for us.

Zeti Akhtar Aziz: Enhancing financial linkages towards economic prosperity Joint opening remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Joint High Level Conference on Islamic Finance: “Enhancing Financial Linkages Towards Economic Prosperity”, Jakarta, 18 July 2011. *  *  *  Bank Negara Malaysia sangat berbangga kerana dapat bekerjasama dengan Bank Indonesia dalam menganjurkan Persidangan Bersama Peringkat Tinggi Kewangan Islam bertema “Enhancing Financial Linkages Towards Economic Prosperity”. Fokus khusus persidangan ini ke atas kewangan Islam dan perkembangannya di peringkat antarabangsa, telah memperlihatkan perkembangan pesatnya sejak beberapa tahun kebelakangan ini, yang turut menyumbang kepada hubungan ekonomi dan pertumbuhan kewangan antarabangsa. Persidangan hari ini mempertemu peserta industri, penggubal dasar dan pengawal selia, serta ahli akademia dan pakar Shariah dari Malaysia dan Indonesia untuk membincangkan peluang-peluang kerjasama. Pengukuhan jalinan kedua-dua sektor kewangan Islam kita bukan sahaja akan menyumbang dalam membangunkan serta mengukuhkan lagi industri ini, malah ia akan turut memanfaatkan secara optima sumber kewangan serantau dan juga meningkatkan keupayaaan untuk mengurus cabaran semasa dalam persekitaran antarabangsa yang sentiasa berubah. Izinkan saya mengambil kesempatan ini untuk menyampaikan penghargaan kepada Yang Terhormat Bapak Prof. Dr. Boediono, Wakil Presiden Republik Indonesia kerana sudi menyampaikan ucaptama di persidangan pada hari ini, dan merakamkan penghargaan kami kepada Duli Yang Teramat Mulia Raja Nazrin Shah, Raja Muda Perak, Malaysia yang telah mencemar duli untuk menyampaikan titah di persidangan ini. Izinkan saya untuk meneruskan ucapan ini dalam Bahasa Inggeris.