In particular, we currently see growth accelerating in prices for dairy products, meat and sugar. The tax policy measures under discussion may have pro-inflationary implications, to be estimated once more clarity is available on the scale of proposed changes. Also, the risks that inflation expectations will decrease too slowly are still there. It is important to take into account that inflation expectations are sensitive to other risks materialising, for instance, to the risks of fluctuating prices in commodity and merchandise markets. These may be affected by even an upsurge in prices for only individual goods or services – for example, those frequently purchased. Growing inflation expectations, in their turn, may reinforce the impact of various oneoff factors on prices. As we look into these trends, we put household expectations in the first place. On the side of analysts’ expectations, these continue to decline and on track to approach the target level of inflation. This is a truly positive trend considering that companies may well be guided by analysts’ estimates in their decision-making – and it is companies that determine prices and wages. As I have mentioned on several occasions before, we are seeking more than a one-time 3 / 14  BIS central bankers' speeches  reduction in price growth to 4%. It is important to anchor inflation near this level in future. For this reason we call this situation price stability, i.e. sustainably low inflation. To maintain inflation close to its target level, moderately tight monetary policy may be needed over a two-three year horizon.

Foreigners investing in Malaysia are also free to hedge with onshore banks their committed flow of funds such as the repatriation of investment proceeds, dividends and profits from Malaysia as well as the purchase of ringgit assets in Malaysia. There is free mobility of inward and outward movement of funds relating to both foreign direct investment and portfolio capital investments. The second key area that Malaysia can play a major role is sukuk issuance, origination and trading. The sukuk market serves as an important platform, complementing conventional bonds in enhancing the effectiveness and efficiency for the mobilization and allocation of funds within national financial systems and in the international financial system. Significant economic growth is taking place in Asia and the Middle East following privatization and implementation of infrastructure projects. This opens up tremendous opportunities for government entities, multinational corporations and multinational development institutions to raise funds through the issuance of sukuks to meet their financing needs. The phenomenal demand for sukuks has been spurred by the high levels of surplus savings and reserves in Asia and Gulf regions coupled with a rising demand for Islamic banking instruments from a growing Muslim population in Europe. Apart from the issuance of a sovereign Islamic sukuk by the Government of Malaysia, and the governments of Dubai (UAE), Qatar, Bahrain and Pakistan, an increase in number of multilateral agencies are also issuing sukuks to finance development projects. These developments signify the key role of the sukuk market in facilitating the economic development process.