##ting conditions have generated inflationary pressures ; the major period being prior to the asian financial crisis. since the 1990s, monetary policy has been further complicated by volatile capital flows. this was evident in several periods, the early nineties, the mid - nineties, and the outflows during 1997 - 1998, and in the current period following the de - leveraging by financial institutions in the advanced economies. in the early days of the bank, policy actions were focused on the management of liquidity in the financial system through the imposition of statutory and liquidity reserve requirements, and through prescription of interest rates and portfolio restrictions, including ceilings on lending. further progress and sophistication in the financial sector, the deepening of the financial markets and the growing influence of capital flows, resulted in the reliance on interest rate and other market - based instruments for monetary policy. further, with the increased role of expectations, greater clarity in policy signals became desirable. thus in 2004, the new interest rate framework was implemented, in which the overnight policy rate became the new policy rate, thereby enhancing the efficiency of the monetary transmission mechanism. the new framework has also served as a catalyst for efficient pricing of financial products and services by banking institutions. a key issue for monetary policy in an open economy like malaysia has been in maintaining a flexible exchange rate and monetary independence in the face of increasingly large capital flows. to better manage surges in capital flows which have become more prevalent, the range of market - based instruments for monetary policy operations has been widened. the rise in intra - regional trade and investment flows has resulted in greater importance being accorded to stability of the exchange rate against regional currencies. the monetary policy decision - making process at the bank has also been redefined in which the governance for monetary policy is based on the monetary policy committee to achieve a more optimal process for policy making. monetary policy communication and increased transparency have also become highly important in this framework. thus, while the central bank's responsibility towards promoting monetary stability conducive to sustainable growth has remained unchanged since the inception of the central bank in 1959, the strategies, framework and instruments have evolved substantially to ensure its effectiveness in delivering the desired objective. financial sector development a key focus of the central bank during these five decades has been institutional building, financial market development and putting in place the financial infrastructure. the evolution of the financial system has seen its transformation from a rudimentary financial system that was dominated by the banking sector to a highly

. hence public policies could focus on helping people back into work, and into jobs where they can develop and refine their skills. finally, the third dimension relates to the scope of the reform agenda. structural reforms should not be limited to product and labour market reforms. strong institutions and a well - functioning financial sector at national and euro area level are necessary conditions to ensure that the impact of other reforms actually materialises. our reform agenda should be sufficiently broad and tackle the binding constraints in the economy. this requires country - specific and countrytailored solutions which allow each member state to find and exploit their comparative advantages in the single market. 20 but it does not mean that countries can reform independently of each other. indeed, to ensure convergence, countries do not necessarily need to have the same economic structures, but they do need to ensure that their economic structures foster resilience and contribute to a more homogeneous transmission of common shocks. for example, if one set of countries focuses mainly on reforms to make wages adjust more quickly in response to shocks, and another on reforms to produce adjustment through employment, the first group will recover more quickly than the second. research21 has shown that countries will only converge in their 3 / 5 bis central bankers'speeches response to shocks if they have a broadly similar mix of labour market institutions – or to put it another way, broadly similar phillips curves. encouragingly, this research finds that changes in labour market institutions since the creation of the single currency have actually contributed to a more homogeneous transmission of common shocks. however, the dispersion could still be considerably reduced. 22 from a euro area perspective, it is thus vital to ensure sufficient resilience and convergence among countries so that all can benefit from monetary union, but not so much as to interfere with national social choices. so this brings me to the question : what role can european institutions play in ensuring resilience and convergence among euro area countries? while the responsibility for structural reform has so far primarily been at national level, european institutions have a strong coordinating role to play. however, relying merely on rules and coordination to achieve mutually beneficial outcomes may not always be sufficient. in some areas, such as banking sector policy, moving from a system of rules and guidelines for national economic policymaking to a system of further sovereigntysharing within common institutions has been highly beneficial for the union and its member states. over recent years a quantum leap forward has been taken by moving from decentralised banking supervision and resolution to the single supervisory mechanism