The case for increased financial liberalization and internationalization maintains that it would foster the development of a more efficient and robust financial system. While the resulting more competitive financial system will enhance the efficiency in the financial intermediation process and contribute towards reducing the cost of intermediation, the supervisory oversight needs to ensure over competition does not result in the mispricing of risk with adverse consequences on financial stability. Other benefits are the increased opportunities for technology transfer, new expertise and greater innovation and new product offerings. Increased foreign participation in the domestic financial markets would also contribute to increased liquidity and more competitive pricing in the domestic financial markets and encourage a more efficient allocation of capital within the economy. It is also maintained that it will contribute to the expansion and development of the domestic financial markets in particular, the capital market, proving an important access for financing of investment activity. With the more efficient functioning of domestic financial markets, it would also improve the transmission mechanism of monetary policy. Meanwhile, the increased capital inflows following the capital account liberalization represents another source of financing that would contribute towards increased investment and growth. It will allow jurisdictions with surplus funds to be channelled to those regions with productive investment opportunities and thus contribute towards a more efficient allocation of funds across international borders. The stronger cross border financial linkages has the potential to enhance international trade and investment opportunities.

Therefore, information content provided in key banking data such as loan demand, rate of loans approval, lending standards adopted by banks, delinquency ratio, and NPL could be useful in helping to assess how risk and activities are evolving in the macroeconomy, and whether the information point to the need for monetary policy to react over and above what the usual price and output data imply, either by an interest rate action or by a macroprudential action. My final observation is on the relevance of inflation-targeting as a monetary policy framework in the post-crisis era. Recently, inflation-targeting has come under a close scrutiny whether the framework is useful given its narrow focus on inflation whereas risk to economic and financial stability can come from many sources other than inflation. In this crisis, the performance of the inflation-targeting economies does differ widely, but the majority are those that have been more successful in weathering the crisis. Examples here include Australia, New Zealand, Canada and a large number of emerging market economies as opposed to a more difficult experience elsewhere. My view is that inflation-targeting remains useful as a framework for monetary policy, and experience of many inflation-targeting emerging markets in this crisis demonstrates clearly that price stability and financial stability can be preserved even under extreme financial circumstances. But the framework could be further strengthened so that the need to pay attention to financial stability concerns can be more formally addressed through a flexible inflation-targeting regime.