governor ’ s keynote address at the international conference on financial crime and terrorism financing ( ifctf ) 2022 speaker : tan sri nor shamsiah mohd yunus / venue : kuala lumpur / language : english / speech / interview date : 26 jul 2022 / it is a pleasure to be able to speak again at this conference after a two - year hiatus. a lot has changed in these two years as we adjust to living with covid - 19. like every other country, we anticipate with hope and perseverance, that the pandemic is well and truly behind us. but this exceptional and extraordinary period in our history will serve to remind us, that vigilance in the fight against financial crime can never be relaxed. during this period, reported financial crimes in many countries increased significantly, as criminals exploited conditions created by the pandemic, to commit financial crimes – making an already difficult time that much worse, for many who became victims of such crimes. occasions like the ifctf provide an opportunity to renew our determination to prevent the financial system from being abused for criminal purposes, or to inflict terror on our communities. financial crimes have a direct and important effect on our economic prospects. so let me preface my remarks today with some observations on our economy. malaysia is firmly on a recovery path. supported by solid domestic activity and positive external demand, the economy is expected to grow steadily in 2022 and 2023, despite continuing challenges from rising cost pressures, the military conflict in ukraine and strict containment measures in china. we are benefitting from strong demand for our exports – especially e & e and commodity - based products. our diversified export products and markets will continue to support our export growth. importantly, we are seeing increasing strength in domestic demand. domestic spending, especially consumer expenditure is on the rise. in fact, retail sales, debit card transactions and consumer goods imports have exceeded their pre - pandemic levels. the economy is also benefiting from a strengthening job market. while unemployment was at its peak of 5. 3 % in may 2020, it is now at 3. 9 %. almost 26, 000 new jobs were created in the first three months of this year, similar to pre - pandemic levels. job vacancies and wages are also rising. this will further reinforce the recovery in domestic demand going forward. that said, there is some unevenness in the economic recovery. certain segments continue to experience hardship and remain vulnerable. these

##b have taken several steps to address fragmentation, and the financial situation in the euro area has improved dramatically. spreads on government bonds have fallen on average by 3 percentage points. interest rates on corporate and bank bonds have also converged substantially. and the fragmentation of financial flows across borders has receded, although it is still higher in some markets than it was before the crisis. bis central bankers ’ speeches the process of cleaning up the banking sector has also advanced considerably. in particular, our comprehensive assessment has encouraged banks to frontload their balance sheet repair and recapitalisation efforts, as well as identifying €25bn in capital shortfalls and imposing important prudential requirements. all this increases confidence in the sector and puts euro area banks in a better position to restart lending to the real economy. nevertheless, these positive developments in the financial sphere have not transferred fully into the economic sphere. the economic situation in the euro area remains difficult. the euro area exited recession in the second quarter of 2013, but underlying growth momentum remains weak. unemployment is only falling very slowly. and confidence in our overall economic prospects is fragile and easily disrupted, feeding into low investment. indeed, the latest flash euro area purchasing managers index released yesterday suggests a stronger recovery is unlikely in the coming months, with new orders falling for the first time since july 2013. in this context, the inflation situation in the euro area has also become increasingly challenging. headline inflation has fallen significantly over the last year. last november, it still stood at 0. 9 %. this was low, but it was generally expected to rise safely above 1 % by now. instead, the latest reading for headline inflation is 0. 4 %. this downward movement of inflation was primarily driven by declines in energy and food price inflation, which are two components that tend to be volatile and whose effects are typically temporary. so to some extent the ecb could “ look through ” them. indeed, in our current environment low energy and food prices give valuable support to economic activity by raising real disposable incomes. but we also see that core inflation is low – the inflation rate that strips out these volatile and temporary components. the annual rate of change in core inflation has been consistently below 1 % over the past year, with the latest reading for october at 0. 7 %. a low reading for core inflation for such a period of time indicates that it is not only temporary factors that are operative : underlying demand weakness is also playing a role. indeed, we have clear