Financial sector reforms and monetary policy

Financial sector reforms in developed and developing countries over the past two decades have been highly beneficial. Under these reforms, an economy with greater flexibility of interest rates, an enhanced role for market forces in credit allocation, increased autonomy of commercial banks, and a gradual deepening of money and securities markets is taking shape. Reduced credit rationing and greater interest rate flexibility have led to improved allocation of financial resources. An increase in competition between banks has lowered the cost of inter-mediation. At the macroeconomic level, countries with more liberalized financial systems have seen better investment performance and increased rates of economic growth.