The Central Bank continued to withdraw the excess liquidity in the market mainly via New Turkish Lira deposit transactions in the Interbank Money Market within the CBRT and repo transactions in the Repo and Reverse Repo Market of the Istanbul Stock Exchange, on an overnight basis. However, when the excess liquidity withdrawn via overnight operations increased, the Central Bank has started to issue liquidity bills from July onwards in addition to its overnight operations in order to increase the flexibility and efficiency of liquidity management. Overnight interest rates in the market were generally around the borrowing rate of the Central Bank, depending on the withdrawal of the excess liquidity by the Central Bank via overnight operations. Hence, the borrowing rate of the Central Bank has continued to be an indicator for money markets. BIS Review 4/2008  7  Based on the information currently available, i)  The increase in base money,  ii)  Coupon and principle redemption by the Treasury to the Central Bank,  iii)  Treasury’s being net foreign exchange debt payer,  will have a lowering effect, while; iv)  The Central Bank’s net foreign exchange purchases,  v)  Interest payments to be made by the Central Bank for required reserves and excess liquidity absorbing transactions,  vi)  The decline in Treasury cash accounts within the Central Bank  will have an increasing effect on the level of the liquidity in the market in 2008.
The Islamic financial system also needs to include the capital market to provide an alternative source of financing, as well as to create broader and more diverse Islamic financial instruments for investors. The equity and bond markets will provide a more balanced allocation of financial and economic resources. This would result in a more efficient distribution of risks within the system, thus creating stability in the system. The equity and bond markets would also provide an avenue for raising long-term capital. With a wider spectrum of instruments in the market, fund managers would be able to manage their portfolios better and spread their risk according to their desired risk tolerance, thereby contributing toward greater stability. Complementing these financial markets is the development of non-bank Islamic financial institutions. Takaful, or Islamic insurance, provides the risk protection to its policyholders and serves as an important mobiliser of long-term funds. In addition, development financial institutions, savings institutions and housing credit institutions need to be developed to meet the diversified customer demands. These specialised institutions will meet the different requirements of the economy. IV. Malaysia’s experience in the development and management of the Islamic finance  The strategy adopted by Malaysia has been to develop a comprehensive Islamic financial system. Malaysia started with the establishment of one Islamic bank to spearhead the introduction of Islamic banking products and services, and at the same time, identified the relevant financial segments that were required to support the expansion of Islamic banking activities.