The imbalances may continue for a period. International capital markets are deep and liquid with an ample supply of credit for US borrowers. If creditors begin to fear a fall in asset prices and withdraw, this may still trigger substantial corrections. This may lead to higher interest rates and perhaps also a fall in US equity markets that spills over to other countries’ financial markets. In that case the dollar will also depreciate. The household debt burden in the US may be another source of instability if households abruptly reduce both housing demand and consumption. The US is not the only source of trade imbalances. They also reflect very low growth in continental Europe and the largely export-based growth in Asian countries. Countries other than the US must therefore also contribute in order to prevent growth in the global economy from faltering. With limited domestic growth capacity and high unemployment, many industrial countries are poorly equipped to cope with a weaker dollar and lower US demand. The challenges are perhaps particularly demanding in Japan and some large European countries. There is also a risk that large imbalances in world trade and low employment in Europe will trigger protectionism, which could reduce growth capacity even further. 2  BIS Review 34//2005  Partly due to very high growth in demand for oil, the average price for Brent Blend rose to almost USD 40 per barrel in 2004. Strong economic growth, particularly in the US and China, has resulted in high energy consumption.
This has been achieved in an orderly manner. Of importance was that the preconditions had been put in place to ensure this orderly transition. The banking sector had been strengthened, the bond market had been developed, and the capital account had been sequentially liberalised. These developments were reinforced by the further deregulation and liberalization of the domestic financial system, thus creating a more competitive financial environment. The successful transition to the new regime following these developments has seen a two-way movement in the exchange rate that reflects the underlying economy and the market conditions. Monetary policy in this environment will continue to be conducted in a manner that will ensure that the long-term growth prospects of the economy is achieved with price stability. As a small, open economy, Malaysia is not insulated from the inflationary forces being felt globally. In this regard, decisions on monetary policy will be determined by the Bank's assessment of a broad range of indicators of the domestic economy. The Overnight Policy Rate (OPR) remains the signalling mechanism to achieve the policy objectives. Interest rates, therefore, is not an instrument to influence capital flows or the exchange rate. The Bank continues to undertake initiatives to enhance communication to promote greater understanding of the objectives, processes and conduct of monetary policy. Extensive deliberations in  BIS Review 55/2006  1  assessing the latest domestic and global economic, monetary and financial developments are conducted at the Monetary Policy Committee (MPC) meetings, which are held eight times a year.