In line with this global tendency, the  The Central Bank, since the 1980s, has  Central Bank of Sri Lanka has also been  been pursuing monetary targeting (MT)  improving its monetary policy  as its monetary policy framework to  framework over the years. achieve price stability. Under this framework, monetary aggregates were used as a key nominal anchor in the conduct of monetary policy and the final objective of price stability was expected to be achieved by influencing money  In particular, the Central Bank has officially announced that the monetary targeting framework would be gradually replaced by migrating towards a flexible inflation targeting framework. aggregates. Reserve money was  Under this enhanced monetary policy  considered the operating target and  framework, the Central Bank would  broad money was used as the  focus on stabilising inflation in mid-  intermediate target of monetary policy  single digits over the medium-term,  under this framework. while supporting growth objectives and  Nevertheless, monetary targeting has  flexibility in exchange rate management. become a less meaningful framework for  Generally, an inflation targeting  monetary policy conduct, given issues  framework is characterised by an  such as the instability in the money  announced numerical inflation target, a  demand function amidst financial  medium-term inflation forecast, which  innovations and the weakening  facilitates forward looking monetary  relationship between money and  policy decision making and a higher  inflation.

The strong cross-border linkages of an integrated ASEAN capital market provide vast business opportunities for countries to capitalize on the diverse comparative advantages in this region. As an access point, Malaysia is well positioned to be one of the gateways for non-ASEAN countries, institutions and investors to participate in these markets. Malaysia has a facilitative environment with a strong regulatory and supervision to support business activities while safeguarding financial stability. In addition, there has also been the strengthening of bilateral economic and financial ties, which has become a prevalent theme across Asia. Supplementary to these affiliations, is also a strong trend to increase participation in Asia’s enormous growth potential through affiliations in regional bodies. Within the ASEAN grouping, among the areas of priority is the deepening of cooperation to accelerate the role of the financial sector in supporting the realization of the ASEAN Economic Community by 2015. Risk mitigation as Asia strives for regional integration The events surrounding the recent European sovereign debt crisis provide us with many important lessons. While exposures to numerous financial markets bring about tremendous economical and financial benefits, it is not without risks. Financial integration between markets, if not well designed, can lead to costly financial implications. Hence, the path to integration can expect its associated challenges that will need to be addressed. In implementing institutional arrangements across the region, it can be expected that individual countries will have to balance national priorities while seeking to strengthen their place in the global market.