Zeti Akhtar Aziz: Extending the boundaries in the new financial landscape Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 10th Malaysian Banking, Finance & Insurance Summit: "Liberalisation and Consolidation of Malaysian Banking & Finance Sector: Enhancing Competitiveness & Resilience of Our Economy", Kuala Lumpur, 9 June 2006. *  *  *  This decade has become one of the most dynamic periods in the development of our financial sector. We have seen the dramatic transformation of the financial structure to becoming increasingly more diversified, the industries becoming more consolidated and rationalized, and the system becoming more internationally integrated. We have also seen the financial system transition into a more competitive environment in which the institutional arrangements are more deregulated and liberalised. The financial infrastructure has also evolved with fundamental changes to support this transformation. Finally, the regulatory and supervisory approaches have also advanced to becoming more principled and risk-based to improve the functioning and stability of the financial system. The financial transformation has taken place in an environment of economic stability. Malaysia 's economic performance has been characterized by sustained high quality growth and stable fundamentals. The underlying growth in the Malaysian economy has been solid. Malaysia has benefited from both the favourable external environment and the strong domestic demand. Malaysia has also benefited from the globalization of production with the geographical relocation of the production chain by an increasing number of both multi-national and local corporations across the Asian region.

The Monetary Policy Statement (MPS) remains the key monetary policy communication tool of the central bank to provide the rationale for monetary policy decisions. Given the pronounced changes in the economy and the significant changes taking place in the financial sector, the industry would essentially need to respond to the new challenges arising from: i. Greater linkages, integration and interdependence between nations. This trend is likely to intensify as more countries embark on initiatives to promote closer regional economic and financial integration, to enhance their level of economic performance. ii. The challenge of intensified competitive pressures, arising not only from changes in the financial environment, the technological advancements and financial reforms but also the entry of new players, including the non-traditional competitors such as non-financial services. iii. Consumers are increasingly confronted with a wide range of new and innovative products and services that are delivered via new and more efficient delivery channels. As consumers are becoming increasingly demanding and financially sophisticated, greater emphasis needs to be given to the provision of the variety and quality products and services at competitive prices through the most effective channels. Banking institutions need to anticipate and rapidly respond to these new demands and expectations. iv. Policymakers are also confronted by the challenge of maintaining overall financial stability whilst at the same time, promoting efficiency in the financial system. Balancing the trade-offs arising from meeting these objectives will be necessary to determine the best course of action.