The effects of the anchoring of inflation expectations and the adjustment of interest-rate levels have recently been reinforced by the looseness of monetary and financial conditions in the euro area. Progress towards fiscal consolidation and the maintenance of  4  BIS Review 45/2005  balanced public finances have contributed decisively to shaping an environment of stability, which has eased the financing of private expenditure and growth. On the supply side, robust population and employment figures have made for favourable conditions in which the expansionary demand impulses have translated into higher growth in activity and not into greater pressure on productive capacity leading to disequilibria. That said, and as I will remark later, this has not prevented the structural shortcomings of the economy from being manifest in upward pressures on prices and costs and in a wider current-account deficit. Job creation is being fuelled by an expanding labour force, to which the increasing inflow of immigrants and the rising labour-market participation of women are both contributing. Regarding immigration, population projections drawn from the 2001 census and the continuously updated municipal population census show an impact that could hardly have been envisaged only a few years back. In any event, strong employment generation has been accompanied by very modest productivity gains, a trend which continued in 2004 when employment increased by 2.7%, compared with 2.5% in 2003, and apparent labour productivity growth was only 0.4%. Domestic demand quickened in 2004 by almost 1 pp, growing by 4.6%.

The need for central banks to have a broad range of instruments, including macroprudential measures, to achieve financial stability policy objectives is now generally accepted. Focus has also been on the efficacy of different policy instruments that are needed to preserve financial stability, the structure and design of decision making frameworks and the accountabilities in regard to financial stability. For Asia, these considerations have been very much a part of the evolution of financial stability frameworks in the region in this recent decade, in particular following the Asian financial crisis. By virtue of being also responsible for bank supervision, the majority of Asian central banks have a clear mandate for financial stability, whether implied or explicit. In the case of Malaysia, this has supported the close coordination of the macro and micro surveillance functions, and more comprehensive assessments and analyses of the interactions between monetary and financial stability policies. Many central banks in the region also have considerable experience in implementing macroprudential measures, such as lending concentrations, loan-to-value limits and some form of “dynamic” reserving or provisioning policies. The intensification of regional monetary and financial cooperation among central banks in the Asian region has also served to strengthen regional surveillance and crisis management arrangements, as well as in the supervision of financial institutions with cross-border operations in the region. As Asia rises and expectations increase, the two billion Asians now at the margins of the consumption economy will radically transform global demand and supply for limited  2  BIS central bankers’ speeches  resources.