We have plenty of tools to provide liquidity support to the financial system if needed and to preserve the smooth transmission of monetary policy. In my remarks today, I will discuss our policy path so far and what lies ahead. And I will explain the reaction function that will govern our future rate decisions. The path so far Last year, inflation in the euro area surged strongly, and spread deeply, because it was driven by two types of shocks which hit the economy at the same time. First, we underwent an unprecedented series of negative supply shocks caused by pandemic-induced supply chain disruptions, Russia’s invasion of Ukraine and the ensuing energy crisis. This significantly increased input costs for all sectors of the economy. Second, we faced a positive demand shock caused by the reopening of the economy after the pandemic. That favourable demand environment allowed firms to pass rising input costs through to prices much faster and more strongly than in the past. [1] Our policy stance was starting from highly accommodative levels, having been tailored to the very-low inflation environment of the past decade and the initial deflationary risks of the pandemic. So, we had to adjust, as quickly as possible, a stance that had become inadequate. This initially placed important emphasis on signalling, i.e. demonstrating, through actions and commitments, that monetary policy would cover the necessary ground decisively. That is why we put a great weight on the pace of our actions, hiking rates in large increments.
The enhanced intermediation during this decade has benefitted access to financing, particularly for small and medium enterprises, has also improved, both in volume and efficiency. By leveraging on the distribution networks of commercial banks, enhanced product and risk management capabilities, access to financing by this sector has increased at an annual rate of almost 20% since 2005. The financial infrastructure in Malaysia has also been significantly strengthened. Malaysia has an effective financial safety net that includes a comprehensive deposit insurance system and institutional arrangements that provide avenues for advisory, redress and rehabilitation. Innovations in payment systems and instruments as well as infrastructure for the issuance, trading and settlement of debt securities and the access improved market information has contributed to greater efficiency and has also enhanced the overall price discovery process. To support our liberalisation measures our payment infrastructure has also been enhanced to support cross-border trade settlements in local currency and cross-border liquidity support arrangements for financial institutions. Today, Malaysia also has a deep and vibrant bond market which is the largest in South East Asia, and a comprehensive Islamic financial system that is recognised as among the most advanced in the world. The bond market comprising of the conventional and sukuk market has trebled in size, providing businesses with alternative access to financing solutions including in multicurrency to meet a diverse range of risk and maturity preferences.