We have been able to affect expectations for the following years through our communications. Other central banks that have not traditionally engaged in this type of communication have, as I mentioned earlier, experimented with different forms of rough ‘triggers’ of various kinds. The academic background to the concept is the insight that expectations of future policy rates are at least as important as their current level when it comes to affecting investment and consumption decisions. In normal cases, the central bank is assumed to be able to influence expectations satisfactorily through its systematic monetary policy. But when the policy rate reaches its lower bound, it is possible to communicate an intention to diverge from normal behaviour and keep the rate low for a longer period and thus substitute, to a certain extent, for an immediate policy rate cut. There has been, however, some discussion of how effective such communication actually is, particularly over longer horizons. 12 The Riksbank's method provides a more complete picture of how we see the situation and the development of the economy. But other ways of communicating about the future have their advantages. One variant of this is the state-contingent US approach: saying that the policy rate will not be raised until the outcome for inflation has reached 2 per cent. 13 In situations where the market does not share the Riksbank’s view of the development of inflation, the US way of communicating can provide more information than inflation and interest rate forecasts.
The global economic performance for 2006 has so far been favourable with a more balanced growth among the major economies, including in Japan and Europe . The world economy is however, facing an extended period of high energy prices and its consequent effects on inflation. Following these developments, interest rates have been raised in most economies. While risks are now emerging for a slower growth in a number of the major economies, growth in the Asian economies have continued to remain robust and resilient. This trend has not only increased Asia 's relative significance in the world economy but it has also contributed to a more balanced global growth. The Malaysian economy has benefited from this favourable external environment. Growth has been supported by both the strengthening exports performance that has be reinforced by strong domestic demand. Domestic demand also continues to be driven by the private sector as private consumption and investment have been an important source of growth. The continued expansion in private investment is particularly important in ensuring the long-term sustainability of the growth. BIS Review 76/2006  1  The focus of the monetary policy in this environment continues to be towards achieving macroeconomic stability. More recently, the higher energy costs have resulted in an increase in consumer prices. In this environment, interest rates have been raised three times. In May this year, a pause in this increase was announced. With limited evidence of demand induced inflation, the assessment is for inflation to moderate in the second half of this year.