The Role of Sentiment Other than perception, the ringgit is also driven by sentiments, mostly adverse. These are commonly cited through the various sentiment indices, for example as measured by MasterCard or the Financial Times. Sentiments are shaped over time by analysts and interestingly, there are three factors that consistently drive market sentiment. One of these is the high level of external debt, frequently cited by international rating 3/7  BIS central bankers' speeches  agencies and analysts alike. The discussion on external debt has driven market sentiment negatively as it is being touted as a source of vulnerability. The fact is that some of these analysis ignore the evidence of more granular data and worse, only skim the surface without the discipline to deep dive into the available data; Market sentiments also play out based on the government financial position and the issue of governance. Sentiments can be easily affected if new issues or indicators are published on the Government’s financial position. This is further exacerbated by the perceived governance challenges that give rise to further negativity; Market sentiment is also affected by a string of negative news headlines. While there were a number of news headlines on ringgit this year, about 30% of the articles by foreign and local media were written in a negative light or perspective. This make it difficult to ensure a realistic view of the country and hence on the ringgit. Realities and Facts Let’s examine these perceptions, or rather misperceptions.
Beyond the ups and downs of the economic cycle since 1999, despite the swings in the international prices of raw materials, monetary policy has managed to keep its inflation record faithful to its strategic aim. I am satisfied that we have fulfilled our mandate. Speaking in Germany, I would like to recall that the average annual inflation rate in this country in the 1990s was 2.2%, and in the 1980s it was 2.9%. Given the initial promise made to all people of Europe that the euro would be as credible, reliable and as good a store of value as were the best of the national currencies. On these figures, I can say that with an estimated average annual inflation rate of 1.95% for the first twelve years, the euro is in terms of safeguarding purchasing power “stark wie die D-Mark”. In a nutshell, the “M” has done its part. The main current challenges for our union originate in the “E”. Economic union is based on responsible national policies: fiscal policies, wage policies, structural policies. At the core of the economic union is the Stability and Growth Pact. The crisis has revealed some of the shortcomings of national policies to comply with the requirements of an economic union. In particular, in a number of cases, national policies that  BIS Review 59/2010  3  are responsible for domestic public finances and for the competitiveness of member economies have not achieved their objectives.