In order to cope with this new situation, we have slightly modified our existing framework of inflation targeting by explicitly highlighting the increasing role of financial stability in our objective function. Accordingly, first we have announced the details of our exit strategy from crisis measures in April 2010. As a first step, we have normalized the liquidity support facilities and brought back the TRY reserve requirement ratios to pre-crisis levels of 6 percent. Second, we started to highlight the macro financial risks and contingent policy responses. For example, we have stated through our policy documents that, if divergence in growth rates between domestic and external demand continues in the forthcoming period, and if this pattern of growth coexists with rapid credit expansion and deterioration in the current account balance, it would be necessary to utilize other policy instruments such as reserve requirement ratios and liquidity management facilities more effectively. The primary objective of the CBT is to achieve and maintain price stability. However, the recent crisis has taught us that this single objective may not be enough for attaining macroeconomic and financial stability. In this respect, we reminded the public that financial stability is one of the fundamental duties of the CBT as stipulated in our Law, and we approach financial stability from a macroeconomic perspective. From an emerging market point of view, the concept of “macroprudential” measures may not be the same as it is perceived in advanced economies.

The focus has gradually shifted from strengthening intermediaries in the domestic Islamic financial industry to fortifying the regulatory, supervisory, Shariah and liquidity framework necessary for such a robust financial system. This has involved greater international cooperation and collaboration in this new environment. A further development has been the evolution of the domestic Islamic financial markets into international markets. This has manifested itself in the form of foreign participation in raising funds and in investment activities in these markets, thus generating increased cross border financial flows. This has drawn participation from both emerging and the developed world in Islamic and non-Islamic countries. Going forward, the Islamic financial system is envisaged to have an increasing important role in connecting the world economies – through the strengthening of financial linkages, it will in turn facilitate increased international trade and investment activities. This internationalisation of Islamic finance will require the intensification of international collective efforts to establish the international Islamic financial architecture, and the development of mechanisms for more effective cross-border liquidity management. Central to achieving this next thrust of development is to develop a high caliber and competent talent base to cultivate financial innovation. Therein lies the investment needed in human capital development to support the industry. While Malaysia’s own experience and aspirations is to evolve into an international Islamic financial centre, we also continue to promote a more inclusive financial system to support a more balanced growth. On the international front, the aim is to enhance our international connectivity and thus establish greater economic linkages with other economies.