This is not only to enhance competitiveness in the Malaysian financial markets but also to strengthen its international integration, thereby facilitating our economic inter-linkages with the global economy. As part of this process, Bank Negara Malaysia on April 11, 2004, liberalised the foreign exchange administration rules to permit Multilateral Financial Institutions and Multinational Corporations to raise ringgit-denominated bonds in the Malaysian capital market. The recent liberalisation of the foreign exchange administration rules on 23 March 2005, has also eliminated remnants of the restrictions on investors and greatly enhanced access to the Malaysian domestic market. The Malaysian foreign exchange environment is now by far, much more liberal than that existing prior to September 1998. To make the Malaysian capital market more competitive, the Government of Malaysia has also exempted non-residents from paying withholding tax on investments in such ringgit bonds issued in Malaysia. Infrastructure development on the issuance, trading, information dissemination and settlement system have also been improved to encourage new issuance and sustain existing instruments. In addition, the regular issuance of Government securities in both conventional and Islamic instruments with different maturities has facilitated the creation of a benchmark yield curve. To meet investors' demand and diversify further Islamic financial instruments, the Government has recently issued shorter-term Islamic Treasury Bills and longer-term Islamic bonds with a maturity of 10 years. With the development of the ringgit bond market it has continued to become an increasingly important source of financing to the economy. Total gross financing amounted to RM85.8 billion.
The inventory cycle is providing lots of support right now and the fiscal stimulus – which is very powerful right now – will abate as we go through 2010. 2010 is also likely to be a more moderate growth period because we still face quite a few headwinds generated by the hangover of the financial crisis. The banks are still under pressure in terms of credit losses. The shadow banking system is still impaired and securitization activity is recovering very slowly. For example, last month we saw the first commercial mortgage-backed securities (CMBS) deal in a year and a half. This means that the constraints on credit availability will take considerably more time to fully abate. If growth is subdued, this implies that the unemployment rate will stay high and inflation will stay low. If this outlook is broadly correct, this suggests that it will be appropriate to keep the federal funds rate target exceptionally low for an extended period. One risk in the outlook is that inflation expectations could become less well-anchored. This could conceivably occur for several reasons. First, people may worry that the expansion of the Federal Reserve’s balance sheet and the increase in the Federal debt will prove inflationary over time. Second, some may worry that the Congress could take actions that would call into question the Fed’s independence with respect to monetary policy and that this could cause the Fed to be less willing to tighten monetary policy in a timely way in the future.