The benefits of global financial integration Financial integration brings benefits to the Malaysian economy. Being a part of the global financial system facilitates trade and investment flows between Malaysia and the rest of the world. It has allowed foreign investors to invest in Malaysia with full confidence that the profits from such investments can be easily repatriated back to their home countries. Malaysian exporters and importers can freely trade with the world in full confidence that they could conveniently receive and make payments in any currency they wish in a quick and efficient manner. At one time, the lack of banking relationships made it necessary for BNM to established bilateral payments arrangements with central banks in many other developing economies to facilitate payments for trade between Malaysia and those economies. The expansion of correspondent banking has now made such arrangements largely redundant. The globalisation of finance has allowed Malaysian corporates to tap global sources of funds to support their investments and operations in other parts of the world, hence broadening their economic opportunities. It has allowed Malaysian fund managers to invest in other markets to diversify their investments and increase the yields to their unit holders. It has allowed foreign funds to invest in our financial markets, adding depth and liquidity to these markets. It has allowed foreign financial institutions to operate in our markets and our financial institutions to operate in foreign markets. Therefore, our engagement with the global financial system brings real benefits to the economy.

The Great Financial Crisis is a good example: at that time, solid and well-anchored inflation expectations in the euro area contributed to counteract the strong deflationary forces affecting our economies. However, since then, market-based measures of inflation expectations in the euro area have been decreasing and this decline has been even more pronounced since the beginning of 2019. This fall in market expectations has raised some questions among central bank watchers on potential risks of deanchoring of inflation expectations and more generally on our ability to deliver our mandate of price stability. I.2. The need for better information on households expectations  Let me stress that market-based inflation expectations are not the only available measures to assess future risks of inflation. Professional forecasters or consensus forecast provide a significantly higher figure than the 5Y/5Y ILS, at around 1,7% rather than 1,2% to 1,3%, although all of them point out to a decrease of inflation expectations over time (Figure 1). Market-based measures have also some technical limitations: first, related to the liquidity of 2  financial markets, and second because they are affected by the evolution of the risk premium over time. Moreover, while financial market expectations provide information on future financing conditions, the evolution of prices and wages depends more deeply and directly on what household and firms expect regarding future growth and inflation. Consequently, existing surveys among firms and households can provide very useful and valuable information on expectations.