Therefore, we do not foresee a significant shift in our current approach to regulation following the proposed global financial reforms. In fact, this reinforces our thinking that the approach we are taking is appropriate for our system. Bank Negara Malaysia has been engaging the banking industry to better understand the impact that the proposed reforms have on Malaysia’s economy and financial system. This will allow us to develop implementation strategies for Malaysia after taking into account specific characteristics of the domestic financial system, including compensating tools and arrangements within the financial system that mitigate risks to financial stability. An important point to consider is that, the implementation process does not result in any unintended consequences. This is where engagement with the banking industry is of utmost importance. We used inputs from the industry and share the inputs at regional and international-level regulatory fora, thus providing an emerging market perspective to the recommended proposals. Malaysian financial reform, regulatory framework and conduct of supervisors Some key regulatory initiatives by Bank Negara Malaysia to further enhance its prudential regulatory framework and conduct of supervision moving forward.   First, to strengthen financial sector legislation through the modernisation and consolidation of existing regulatory/oversight laws under Bank Negara Malaysia’s purview. The enhanced legislation ensures that Bank Negara Malaysia is entrusted with the necessary mandate and power to maintain financial stability and to conduct effective supervision of financial institutions.

On the fiscal front, investment in effective water management systems is urgently needed on top of reconstruction and assistance for flood victims and affected firms. This will not only restore foreign investors’ confidence, but will also enhance the economy’s productivity and its potential growth by avoiding future disruptions and making more efficient use of the country’s abundant water resources. BIS central bankers’ speeches  3  Nevertheless, the expected massive spending for such purposes will unavoidably stretch the government’s fiscal resources. At the same time, the government will have to spare some fiscal policy “bullets” in the event that the situations in the U.S. and the Eurozone worsen more than expected and lead to another global recession. Against this backdrop, mediumterm fiscal discipline is needed to ensure long-term sustainability of the country’s public finance. This means the government will have to rethink or reprioritize certain policies that may not contribute to productivity enhancement. Meanwhile, the Monetary Policy Committee (MPC) had been raising the policy interest rate over the past year, until the last meeting in October where the MPC hold the policy rate unchanged. Personally, I view the current level of our policy rate to be accommodative enough to support domestic recovery, with some room available for further easing if needed. While upside risks to inflation are not very serious at the moment, we still need to keep our eyes on inflation pressures that are likely to build up with the pick-up in public and private spending after the flood is over.