avoid this, monetary policy has to be tightened to curb domestic demand, so that weaker demand gradually offsets the inflationary effects of the supply side shock. this is why we tightened monetary policy in 2011, by raising interest rates. as you may remember, the central bank rate ( cbr ) was raised very sharply in the second half of 2011 because the supply side shock to prices was itself very large ; for example, annual food price inflation rose to 50 percent in september 2011. once we saw evidence that inflationary pressures were abating and we were convinced that inflation was on a downward path, we were able to begin cautiously easing monetary policy, by reducing the cbr in february of this year. inflation has now been brought back down to our medium term target of 5 percent. looking ahead over the next 12 months, we intend to set our monetary policy, using the cbr, to maintain core inflation as close as possible to 5 percent. although inflation is the primary target of our monetary policy, we are also concerned with the growth of real output, which is a secondary objective of monetary policy. more specifically we aim to ensure that real output is in line with its potential level, which is determined by supply side growth. this means that, in circumstances where real output is below its potential bis central bankers ’ speeches level, we will use monetary policy to support a recovery of output provided that this does not undermine our ability to achieve our inflation target. in some circumstances, notably when the economy has suffered an aggregate supply shock, as was the case in 2011, there is an unavoidable conflict between achieving both the inflation and output targets. in these circumstances the inflation target has to take precedence, because otherwise the credibility of the central bank to control inflation will be jeopardized. however there are other circumstances where there is not an inherent conflict between the inflation and output targets. with the supply side shocks which hit our economy in 2011 having now abated, the conflict between the inflation and output targets has also largely dissipated, although it could re - emerge if the economy were hit by further supply side shocks in the near future. we estimate that the potential growth of real output of our economy – which is determined by the growth of the labour force, capital investment and productivity growth – is currently in the region of 6 – 7 percent per annum. in the last fiscal year, real output growth was only 3. 4 percent ; about half of the potential growth rate. as a consequence, a negative

rasheed mohammed al maraj : bahrain country showcase speech by his excellency rasheed mohammed al maraj, governor of the central bank of bahrain, at the bahrain country showcase, dubai, 14 may 2007. * * * your excellencies, ladies and gentlemen : good morning. assalam alaikum wa - rahmatullahi wa barakatuh it gives me great pleasure to welcome you all here today, and to open this bahrain country showcase event. bahrain, of course, has a long history as a financial centre, including a global profile as a centre for islamic finance. but bahrain has much more to offer than simply its experience and credibility – however important these factors are, of course. many developments have also quietly been taking place in recent years, and i am pleased that we have an opportunity such as this one to publicize just some of the features that continue to make bahrain a thriving financial centre. for whilst regional competition has undoubtedly grown significantly – and by the way this is something that i welcome, as benefiting the region as a whole – it is also true to say that bahrain has continued to thrive as an international financial centre. this is something that perhaps doesn ’ t attract the publicity that it ought to, but is perhaps understandable – news organizations look for what ’ s new, more than for what ’ s stayed the same. before i hand over to my colleague from bahrain financial services development, part of bahrain ’ s economic development board, to highlight the key features of bahrain ’ s financial services sector, let me just say a few words about current regulatory developments. bahrain has progressed quite dramatically in recent years, in terms of regulation. the bahrain monetary agency – long - established as the country ’ s central bank and highly respected banking regulator – became a single regulator in 2002, when it was also given responsibility for supervising the insurance sector and capital markets. last year saw the culmination of this process, with the introduction of new legislation and the creation of the central bank of bahrain as the successor organization to the bma. parallel to this process of institutional reform has been an unprecedented period of development and consolidation in terms of our regulations. starting in 2004, we introduced a system of comprehensive rulebooks, containing all our regulations in easily accessible format, to improve communication and transparency. and we introduced new regulatory frameworks for insurance and investment business firms, in 2005 and 2006 respectively. now, we are working on updating our capital markets rules. the first element