negara malaysia. at this juncture, let me take this opportunity to share with you some of the recent economic and financial developments and the major policy initiatives by bank negara malaysia. the global economic performance for 2006 has so far been favourable with a more balanced growth among the major economies, including in japan and europe. the world economy is however, facing an extended period of high energy prices and its consequent effects on inflation. following these developments, interest rates have been raised in most economies. while risks are now emerging for a slower growth in a number of the major economies, growth in the asian economies have continued to remain robust and resilient. this trend has not only increased asia's relative significance in the world economy but it has also contributed to a more balanced global growth. the malaysian economy has benefited from this favourable external environment. growth has been supported by both the strengthening exports performance that has be reinforced by strong domestic demand. domestic demand also continues to be driven by the private sector as private consumption and investment have been an important source of growth. the continued expansion in private investment is particularly important in ensuring the long - term sustainability of the growth. the focus of the monetary policy in this environment continues to be towards achieving macroeconomic stability. more recently, the higher energy costs have resulted in an increase in consumer prices. in this environment, interest rates have been raised three times. in may this year, a pause in this increase was announced. with limited evidence of demand induced inflation, the assessment is for inflation to moderate in the second half of this year. in addition, the extent to which the external environment will be affected by the higher energy prices and rising interest rates, and its implications on our domestic economy, will be important considerations in the future direction of interest rates. the risk to higher inflation and to the growth prospects will be carefully balanced. monetary policy will continue to promote sustainable growth in an environment of price stability. since the dialogue a year ago, the financial landscape continues to be transformed. the domestic financial industry has seen further rationalisation and consolidation in the banking groups in retail banking and investment banking. while the rationalization in the retail banking industry would benefit from the economies of scale, reduce duplication of resources and promote cost efficiency, the new investment bank framework is expected to bring about the emergence of more effective, efficient and resilient capital market intermediaries. it will essentially result in the consolidation of 32 entities into 16 investment banks by the end of this year.

tightening of monetary policy globally, both the extent and pace, has been unprecedented. without doubt, the ecb's rate increases are being transmitted forcefully to euro area financing and monetary conditions. however, the lags and the strength of transmission to the real economy remain uncertain. slide 2 recent events in the financial markets have heightened uncertainty, which may influence the transmission of monetary policy in the euro area, too. however, the euro area banking sector is resilient. the banks have strong capital and liquidity positions, well above the minimum requirements, and far above the levels prevailing before the global financial crisis. but of course we must remain vigilant to identify risks. my final point is on communication and forward guidance. i draw from research suggesting that central banks should never tire of communicating their objectives and outlining the elements of their monetary policy reaction functions. for the bank of japan, the recent decision to do a broad - perspective review of monetary policy will provide an excellent opportunity for such communication. when it comes to the ecb governing council, our communication guidance reflects the prevailing uncertainty. since march we have been providing information on the critical elements that we monitor in determining our data - dependent approach on policy rate decisions going forward. these elements are, firstly, an assessment of the inflation outlook in the light of incoming economic and financial data ; secondly, the dynamics of underlying inflation ; and thirdly, the strength of our monetary policy transmission. in our monetary policy stance, we have recently reached a point where rates are in restrictive territory. in my view, it is essential that we see a steady and sustained decline in underlying inflation before we start considering easing the policy again. the governing council has already made it clear that we will continue to follow this data - dependent approach to determining the appropriate monetary policy stance. the journey is not over yet. on that note, i shall conclude my remarks. i would just – finally – like to express my thanks for this opportunity to share my views with such distinguished fellow panelists. i look forward to our discussion. 2 / 2 bis - central bankers'speeches