systems. these developments have also seen the growing presence of asian financial institutions in the region. in 2011, central banks in the asean region have endorsed an asean financial integration framework which will pave the way for greater market access and operational flexibility for qualifying financial institutions. this represents the collective commitment of the region in the efforts to strengthen the region ’ s capacity to intermediate regional and international financial resources to productive activity in the region. a third imperative is the alignment of the financial sector to asia ’ s demographic trends. demographic profiles vary widely across asia and have a significant impact on economic potential of the region. for many parts of asia, demographic developments foreshadow significant changes in consumption, health and educational patterns. these changes have reinforced the significance of domestic sources of growth. asia ’ s rising domestic demand has been supported by the development of a much broader range of financing options. going forward, the access to financing for healthcare, education and retirement will reduce the need for high levels of precautionary savings, and thus strengthen further domestic demand in the economy. the fourth imperative relates to ongoing efforts to expand financial inclusion. financial inclusion has been, and must continue to be, a key component of asia ’ s overall strategy to achieve balanced and equitable growth. indeed, in the advanced economies, there is a now greater focus and attention on expanding financial inclusion to support the strength of recovery. emerging asia has achieved remarkable progress on this front. the period of higher growth has been accompanied by lifting millions out of poverty. asia however still remains the home of two - thirds of the world ’ s poor. therefore, much still remains to be done. the imperative is to arrest the widening income disparities and in inequality through providing more households and small businesses with meaningful access to financial products and services, thus bringing them into the economic mainstream. another is ensuring that as asia develops, households, particularly in the lower income groups, do not become financially excluded because financial products and services become increasingly unaffordable or complex, or due to practices of financial institutions which increase barriers to access. finally, asia is now building on the progress that has been made in strengthening the resilience of our financial systems. authorities in asia are at various stages of translating the global financial reform measures into local standards. in a number of countries in asia, the global financial crisis has also sharpened the focus on risks in financial institutions which are more systemically important. this includes having the regulatory reach that extends to institutions outside the formally regulated

and labor, and financial institutions with significant holdings of nonperforming loans. firms have since restructured their business lines and improved their financial standing, while the rate of banks'nonperforming loans has been reduced from a peak of above 8 percent to below 3 percent. i think it is fair to say that those impediments have now mostly been removed. ii. the price situation on the price front, there is not yet any evidence of inflationary pressure despite steady growth in the economy. the annual rate of change in consumer prices ( excluding fresh food ) stayed negative from fiscal 1998 through 2004. although small but positive in both fiscal 2005 and 2006, the recent figures are again negative, albeit marginally. the absence of inflationary pressure despite steady growth in the economy is one of the distinctive features of the current recovery and also a somewhat puzzling phenomenon. behind it, i believe, lie three changes affecting the formation of prices and wage - setting. the first is the advance of economic globalization. as globalization proceeds, competition with newly industrialized economies that enjoy lower labor costs has been compelling firms to raise productivity and to retain their restrictive stance on labor costs, together with greater exposure to the discipline of the capital market. the second is the influence of deregulation. even nonmanufacturing firms, which are relatively unexposed to the global market, find themselves in a fiercely competitive environment as deregulation and realignment of the industry continues. attitudes on the part of employees could be listed as the third change. employees, having experienced a protracted period when the employment situation was severe, still tend to prefer stable employment to wage increases. taking a rather longer perspective, however, the environment surrounding prices is likely to change gradually. first, with the economy continuing to grow steadily, overall supply and demand conditions are likely to tighten. second, labor market conditions are becoming tighter, as indicated by the decline in the unemployment rate. that will eventually lead to rising wages although this may be gradual. third, surveys of inflation expectations in the private sector suggest moderate rises in prices ahead. given those factors, the annual rate of change in our consumer prices is expected to be around 0 percent in the short run, but gradually to rise in the longer run. iii. the conduct of monetary policy i will now turn to the conduct of monetary policy. in a situation where prices are not rising while the economy is growing steadily, the bank has been adjusting the level of interest rates in a