This has been achieved in an orderly manner. Of importance was that the preconditions had been put in place to ensure this orderly transition. The banking sector had been strengthened, the bond market had been developed, and the capital account had been sequentially liberalised. These developments were reinforced by the further deregulation and liberalization of the domestic financial system, thus creating a more competitive financial environment. The successful transition to the new regime following these developments has seen a two-way movement in the exchange rate that reflects the underlying economy and the market conditions. Monetary policy in this environment will continue to be conducted in a manner that will ensure that the long-term growth prospects of the economy is achieved with price stability. As a small, open economy, Malaysia is not insulated from the inflationary forces being felt globally. In this regard, decisions on monetary policy will be determined by the Bank's assessment of a broad range of indicators of the domestic economy. The Overnight Policy Rate (OPR) remains the signalling mechanism to achieve the policy objectives. Interest rates, therefore, is not an instrument to influence capital flows or the exchange rate. The Bank continues to undertake initiatives to enhance communication to promote greater understanding of the objectives, processes and conduct of monetary policy. Extensive deliberations in  BIS Review 55/2006  1  assessing the latest domestic and global economic, monetary and financial developments are conducted at the Monetary Policy Committee (MPC) meetings, which are held eight times a year.

Moving forward, the Bank will step up its vigilance of the industry's state of readiness to cope with the changing environment. An orderly transition of the market-led adjustments is vital to ensure that the adjustments does not destabilize the market or undermine public confidence. To this end, efforts will continue to be directed towards building institutional capabilities and putting in place the necessary supporting financial infrastructure to provide a firm foundation for orderly change. Initiatives in the area of financial education for consumers will be intensified to further expand the coverage as well as to promote the fair treatment of consumers. With a strong foundation in place to meet increased competition, further deregulatory and liberalisation measures will be introduced. This will include greater flexibility accorded to foreign insurers to establish branch offices, the progressive deregulation of pricing for tariff-rated insurance products, greater investment management flexibility and removal of limits on management expenses and continuing improvements in disclosure standards to promote greater market discipline in the more deregulated environment. On-going deregulatory measures will also further enhance the ability of insurers to respond more proactively and speedily to changes in consumer demands and market conditions. The prudential framework will also continue to be adjusted to establish principles of sound financial and business practices in the changing environment, with a significantly stronger emphasis on risk-based supervision and effective board and management oversight.