It has facilitated stronger financial and economic ties between Asia and Middle East. The sukuk market in particular, has become an important avenue for international fund raising and investment activities that generate significant crossborder flows. The sukuk market has experienced tremendous growth in the recent few years from an outstanding amount of USD33 billion in 2006 to USD180 billion as at end 2011. Malaysia is now evolving to become a major multi-currency bond and sukuk market. Important in this development are the initiatives that have been taken to strengthen the institutional and international infrastructure of Islamic finance. Most important is the emphasis being given to the development of the international financial infrastructure relating to financial stability. The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) was established in 1990 and in 2002, the Islamic Financial Services Board (IFSB) was established as the international prudential standard setting body for the Islamic finance industry in the areas of risk management, capital adequacy, governance, conduct of business and supervisory process. From ten members at its inception, the IFSB is now a 189 strong member institution comprising mainly regulatory and supervisory authorities. A more recent initiative is the establishment of the Islamic Financial Stability Forum (IFSF) as a platform for greater engagement between the regulatory authorities in the Islamic financial system and promoting more effective cross-border cooperation. Efforts now is focused on putting in place arrangements for enhancing liquidity management in the Islamic financial system.

Commodity exports play a particularly important role in several of the countries that were the first to introduce inflation targeting. The objective of monetary policy is to safeguard the value of money in the long term, and seek to contribute to stabilising economic developments in the short and medium term. The most important contribution monetary policy can make to sound economic developments in the long term is low and stable inflation. The inflation target provides an anchor for economic agents’ expectations concerning future inflation. We have a very open economy with free capital movements. Stable inflation expectations also contribute to more stable krone exchange rate expectations. Inflation targeting means setting the interest rate so as to achieve a numerical target for inflation. Norges Bank sets the interest rate with a view to stabilising inflation at 2.5 per cent within a reasonable time horizon, normally 1-3 years. The more precise horizon will depend on disturbances to which the economy is exposed, and how they affect the path for inflation and output. The inflation target represents a framework for, not an obstacle to, monetary policy’s contribution to stabilising output and employment. We have chosen flexible inflation targeting, i.e. variability in output and employment as well as in inflation is given weight. The objective of monetary policy is low and stable inflation. The instrument is the interest rate. The interest rate influences inflation with a lag and with varying intensity. As interest rates fall, household and local government consumption and investment tend to pick up.