Zeti Akhtar Aziz: ASEAN – towards a more integrated market Keynote speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 19th ASEAN Banking Conference 2012 “ASEAN – towards a more integrated market”, Kuala Lumpur, 7 November 2012. *  *  *  As we enter a new phase of globalisation, Asia’s role in the world economy is being significantly transformed both in terms of its significance and influence. ASEAN economies are very much a part of this process. This trend has become more pronounced following the global financial crisis. Five years into the crisis, the world economy continues to be challenged to hold a sustained recovery. The financial sector restructuring and reforms, and the structural adjustments being undertaken by the crisis-affected economies will not only take time to produce results, but in the more immediate term, these efforts will involve costs to the economy. While emerging markets such as those in the ASEAN region are not insulated from these developments, the region has displayed remarkable resilience during this period. The region has benefitted from the decade of restructuring and financial reforms following the Asian financial crisis. In addition, structural adjustments undertaken during this period and have resulted in more diversified economies, in which domestic sources have become increasingly important in sustaining growth performance. The region’s more favourable growth prospects are also underpinned by the relatively sound fundamentals that include strong external and fiscal positions, stable macroeconomic conditions, low unemployment and resilient financial systems.
That includes: implementing decisions; monitoring market developments; identifying and, where appropriate, addressing risks to resilience and effectiveness. In many ways the November MPC decision was a historic change in policy – the first increase in Bank Rate in over a decade (Slide 9). I remember the previous increase in Bank Rate well as the July 2007 MPC meeting was the first I attended as the Treasury’s representative. A lot else has happened in the intervening 10 years, but from an operational perspective it was a relatively straightforward change for the Markets area of the Bank to implement. Bank Rate, which is the rate paid on reserve accounts held at the Bank by 183 financial institutions, was changed immediately after the MPC’s decision and used as the basis for calculating interest due for that day. Because reserves held at the central bank are the ultimate liquid and risk-free asset in any currency, the rate paid on them serves as the reference point for all other overnight interest rates in the money market. As a result a range of key overnight market rates increased on the day of the MPC’s decision including the Sterling Overnight Index Average (SONIA, a key benchmark for unsecured overnight borrowing and lending) and the Repurchase Overnight Index Average (RONIA, a key benchmark for overnight borrowing and lending secured against gilt collateral). In the period since the change in Bank Rate, both SONIA and RONIA have been on average 25bps higher than in the month preceding the decision (Slide 10).