For those without a university qualification, the probability of being in work three years from now might be 27-37% lower.16  During jobs recessions, many workers choose to move down the skills spectrum to regain a foothold on the jobs ladder.17 But if many displaced workers have low levels of skill and experience, the option of moving down the skills spectrum may not be available or may at least have lower value. Skilling or re-skilling will then be needed. This adds to the time it takes workers to re-enter the jobs market, prolonging high unemployment. 16 17  Henahan (2020). Haldane (2019), Moscarini and Postel-Vinay (2016) and Moscarini and Postel-Vinay (2018). 16  All speeches are available online at www.bankofengland.co.uk/speeches  16  The possibility of labour market mismatches, whether by sector or skill, increases the chances of high unemployment proving persistent, with scarring effects on the economy’s supply potential. Put differently, labour market mismatches raise the economy’s NAIRU – the level of unemployment at which supply bottlenecks and wage pressures re-emerge. The higher the NAIRU, the smaller the degree of slack in the economy. Historically, pandemics have not tended to have a persistent upward impact on prices.18 But a higher NAIRU would be one reason to be cautious before jumping to that conclusion. A second is that the policy response to the Covid crisis, both monetary and fiscal, has been significantly more expansionary than any previous pandemic.

This has contributed to a well-diversified economic structure and has increased the resilience of the economy to external developments. The financial sector has also seen significant transformation. The restructuring, consolidation, and internal rationalisation of the banking sector is now virtually completed. Governance and risk management practices have also been improved while structural enhancements have been made in the capital market, significantly enhancing its role in the financial system. A comprehensive and robust Islamic financial system now also operates in parallel with the domestic, conventional financial system. Against the background of strengthened economic fundamentals and financial system, Malaysia has taken the opportunity to sequentially deregulate and liberalise the financial system. This includes the introduction of a new interest rate framework that is market-driven,  1/2  the liberalisation of foreign exchange administration rules to promote greater efficiency and enhance risk management in foreign exchange transactions, and the introduction of new foreign players into our financial system. In July this year, Malaysia adopted a managed float for the Ringgit exchange rate to better position Malaysia to respond to structural changes in the global and regional environment. Under this arrangement, the Ringgit is monitored against a basket of currencies of Malaysia's major trading partners. In this world of greater uncertainty, there has been significant focus on the issue of surveillance and risks and vulnerabilities. Experience has shown that surveillance has improved policy performance as well as the ability to take pre-emptive action to contain the impact of disruptive and destabilising developments.