The FOMC also indicated that it would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate. You may recall that Chair Yellen reiterated 7 / 15  BIS central bankers' speeches  these points in her press conference following last month’s FOMC meeting. Likewise, while the principles and plans do not indicate an expected role for asset sales in portfolio normalization, except in that limited sales might be warranted in the longer run to reduce or eliminate residual holdings of agency MBS, the operational capability remains, even though we do not expect it will be needed. Unexpected operational demands could also emerge from technical developments within the Treasury and agency MBS markets. Even though it is shrinking, the Federal Reserve’s portfolio is and will remain large, and market participants will look to the Federal Reserve to lend out on a collateralized basis some of its holdings from time to time in order to facilitate settlement, as is done by most other large fixed-income investors. The Desk does this in the Treasury market via its decades-old securities lending program, and performs an analogous role in the agency MBS market by conducting so-called “dollar roll” and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions.

Second, individual countries need to press on with unfinished financial reforms and take judicious steps to liberalise the financial sector. Greater regional cooperation On regional cooperation, countries have clearly recognised the benefits of greater trade integration, driven by the forces of globalisation. To facilitate the integration process, ASEAN has accelerated the timetable for the formation of an ASEAN Free Trade Area. Last October, the leaders decided to commit to creating an ASEAN Economic Community, giving for the first time a supranational cast to ASEAN’s aspirations. The ASEAN+3 process that links ASEAN with China, Japan and South Korea, ought eventually to evolve into an East Asian Economic Community that may include Australia and New Zealand. ASEAN is also negotiating free trade agreements with key trading partners. In addition to a Comprehensive Economic Partnership with Japan, ASEAN has targeted FTAs with China and India by the end of this decade. Meanwhile, individual ASEAN countries are already concluding FTAs with China, India and Japan. More recently, regional countries have also embarked on various initiatives to deepen capital market cooperation and integration in the region. For example, the EMEAP Group, comprising 11 central banks and monetary authorities in the East Asia and Pacific region, has launched the Asian Bond Fund I. The group is now working towards launching the local currency-denominated Asian Bond Fund 2. The ASEAN+3 member countries have also made significant progress to develop regional bond markets under the Asian Bond Market Initiative and to establish a regional financing arrangement through the Chiang Mai Initiative.