other factors that could affect demand in the near term. it will be the monetary policy committee ’ s task to decide how to respond to these different short - and long - term prospects, with the aim of keeping inflation close to target. monetary policy instruments are currently being revised, with an eye to improving liquidity management and preparing for a tightening of banking system liquidity concurrent with the central bank of iceland holding company ’ s domestic asset sales and other possible measures related to capital account liberalisation, which will cause short - term market rates to move closer to the centre of the bank ’ s interest rate corridor. this could increase the bank ’ s net interest income. the monetary policy currently being pursued is different than that prevailing before the crisis, owing to the presence of the capital controls and a managed float rather than the virtually free - floating exchange rate regime that was in place before the crisis struck. the policy described in the bank ’ s december 2010 report “ monetary policy in iceland after capital controls ” has therefore been implemented in part. it is possible that we could go even further in the near future and create a monetary policy framework that would supplant the joint declaration of march 2001, confirming some of the changes already in place and paving the way for others. if that is done, it is important to remember that there are limits to what monetary policy can achieve. in the long run, monetary policy can affect inflation, and in the short run it can smooth out cyclical fluctuations, particularly when it is credible ; i. e., if inflation expectations remain close to target even during attempts to mitigate recessions. once the slack disappears, however, monetary policy cannot deliver output growth beyond the growth potential of the economy, and any attempts to do so will ultimately lead to inflation persistently above target. by law, the central bank of iceland has two main objectives. the first is to promote price stability, the main task of monetary policy. the second is to promote financial stability. as regards monetary policy implementation, the central bank is independent and stands alone. it is also independent as regards its contribution to financial stability ; that is, its own analysis and decisions on the prudential rules it is tasked with setting ; i. e., concerning liquidity and bis central bankers ’ speeches foreign exchange risk. in addition, like other central banks, it plays a key role in crisis management through its liquidity facilities and its role as lender of last resort. but it is emphatically not

market in the current environment has been 10 to 20 basis points lower than mainstream bonds. an increased number of multilateral agencies are issuing sukuks to finance development projects. in addition, both government agencies and the corporate sector have considered the sukuk market as an attractive source of financing. from the investor perspective, there are the benefits of diversification. in a sukuk issue in 2005, 48 per cent of the issuance were subscribed by conventional - based investors. this increased appetite for sukuk reinforced by excess liquidity in the global financial system is part of the reasons sukuks are attractively priced for issuers. extending the linkages to other parts of the world the emergence of islamic financial products, in particular, in the capital market has also promoted greater global financial integration. the bringing together of financial institutions and market players across continents to participate in this expansion of inter - regional investment flows has fostered financial linkages among the major regions. this will not only provide great synergies and opportunities but will contribute towards facilitating international financial stability. just as the old silk road in the 14th century offered a route that facilitated the spice trade from the east to the west, we can now envisage the new silk road which financial flows across borders between the east and west, thereby promoting international financial integration. in this context, the islamic capital market, in particular, the sukuk market has a major role in strengthening this interlinkage. the essence of the new silk road is to provide a route for such flows and promote greater financial integration for the benefit of a wider community. the new silk road should not be envisaged as just a link between asia and the middle east but that which extend to europe and the rest of the world. indeed, we are already seeing the participation of global investors and the international financial community. the participation of a financial centre like london will foster the global growth and international integration of this market. the involvement of regulators and government agencies is also contributing to accelerating this process. malaysia is one of the key intermediary destinations along this new silk road that offers a platform for the origination, distribution and trading of islamic capital market and treasury instruments, including sukuks. malaysia is positioning itself as an islamic investment gateway to asia, with a niche in islamic fund and wealth management. malaysia has developed a comprehensive islamic financial system that operates in parallel with the conventional financial system. of significance, is the inter - connectivity within the system that