Policy shifts and the proliferation of binding “one-size-fits-all” regulatory prescriptions however, goes against the grain of regulation that is proportionate to risk which has been a well established principle of sound regulation. There is therefore considerable risk to simply following new “trends” which may lead us down yet another potentially misguided path. In particular, the significant efforts made in the region over the recent decade to bolster financial sector efficiency and innovation, which in turn promotes financial integration, could be disproportionately curtailed. In addition, it has only been recently that the global attention has also turned to enhancing supervisory intensity and effectiveness as an essential component of the financial reform effort. This is a welcome move and will add a critical dimension to the consideration of future reforms by national authorities. In Asia, financial reforms were already accompanied by a significantly strengthened supervisory approach and safety net arrangements, which served to check unfettered innovation and reckless risk-taking behaviours and promote strong incentives for prudent risk management. For these reasons, our banking systems have been resilient through the global financial crisis and have continued to remain strong since, despite continued risks in the global economy. As we contemplate the raft of reforms that will continue to occupy the global agenda in the next few years, our considerations should be to pursue domestic and regional solutions that will deliver a more resilient financial system without impairing the continuous provision of efficient financial services that are vital for our economies. Let me conclude my remarks.

The internet, or e-commerce, also brings greater contestability, by making it a lot easier for businesses to check the prices of competing suppliers, and for consumers to compare prices across different retailers (Table 3). Over time, these forces would be expected to reduce firms’ margins – at least in sectors that were not previously especially competitive. So long as that process of adjustment was underway, inflation would tend to be lower than would otherwise be implied by any given set of demand conditions. In addition, if and when their margins became thinner, firms might become more aggressive in controlling costs in the face of fluctuating demand, which might weaken the pass through of demand shocks into inflation. The new monetary framework might reinforce some of those effects. Over recent years, more than a handful of business managers have commented that, when inflation was both high and highly variable, it used to be easier to implement – or ‘get away with’ – price increases. In a low inflation environment, it should be easier for business customers and consumers to distinguish relative price changes from increases in the general price level. That too should foster greater flexibility and efficiency in our economy; and is one of the contributions that low and stable inflation can potentially make to broader economic welfare. One striking example is the distribution sector. Anecdotally, competition in UK retailing has been intense. This seems to manifest itself in the aggregate data in two phases.