In discharging this responsibility, policymakers must consider macro perspectives, be able to look further afield, evaluate risks, and take timely actions to manage these risks. The Global Financial Crisis provides a stark reminder that markets cannot be exclusively relied on to rein in excesses. Left to the market, there is always a tendency to overshoot. Market forces can at times deviate significantly from public interest. This is where policymakers step in to moderate these effects and steer markets back onto a sustainable path. This is infamously described as, central banks ‘taking away the punch bowl, just as the party gets going2’. One ‘party’ we saw developing was the imbalance in the foreign exchange market, more specifically in the ringgit non-deliverable forward (NDF) market. Measures taken by the Bank in December last year were aimed at further developing the onshore financial markets and limiting the influence of speculative pricing of the ringgit in the offshore market which had undermined the stability of the domestic foreign exchange market. Since the implementation of these measures, the exchange rate stabilised, with the 1-month implied volatility recording a lower average of 4.5%, against 9.9% before the measures were put in place. The average intraday movement recorded a daily average of 76 points while the bid-ask spread recorded an average of 25.0 basis points since end-February 2017. Of importance, the onshore foreign exchange market continues to record a healthy daily average volume of USD10 billion. Prior to the measures, the daily volume was around USD8 billion. The Malaysian bond market remains resilient.

The revisions also aim to better support the development of domestic expertise and capacity in core functions of the banking industry. Third, a shared security operations centre for the financial industry (FINSOC) will be established in coordination with the industry to support the continuous and proactive monitoring of cyber threats. Finally, by 2018, we hope to operationalise an industry-wide implementation of e-KYC for the on-boarding of customers. Further progress has also been made on the development of the policy framework for domestic systemically important banks (D-SIBs). Survey results collected from banking institutions and financial holding companies earlier this year are currently being analysed and will facilitate further refinements to the assessment methodology to identify D-SIBs. This will form part of the D-SIB policy framework which will be released later this year for industry consultation. Beyond the immediate term, the Bank is also looking at introducing enhanced standards on measuring capital requirements and outline expectations on recovery planning, in line with global reforms. In doing so, we will engage the industry on the potential domestic implications, and make adjustments where necessary to ensure that these standards are phased-in seamlessly. A World of Contrasts: Shifting From Macro Masterplans to Micro-Cellular Transformation Malaysia’s transition to a high-income economy will require careful attention to the context in which policies are developed and pursued. In particular, behavioral changes shape the way people live and work. Thanks to globalisation and digitalisation, individuals are much freer to dictate their living, working and financing arrangements.