Nevertheless, 12 and 24 month-forward expectations are slightly higher than the figures implied by inflation targets for the ends of 2011 and 2012. 2. Monetary policy response  Dear Members of the Press, Dear Guests, After commenting briefly on inflation developments, I would like to cover the policies pursued by the Central Bank during the last quarter. Although domestic demand was relatively stronger during the third quarter of 2010, aggregate demand conditions continued to support disinflation due to weak external demand, bringing core inflation to historically low levels. Therefore, the Monetary Policy Committee maintained its stance of keeping policy rates constant for some time, and to keep them at low levels for a long period. Observing the surge in capital inflows as the last quarter of the year began, in anticipation that the combination of strong domestic demand and weak external demand will continue, I would like to remind you that rapid credit growth coupled with the risks regarding the current account deficit and financial stability necessitates caution. In this respect, considering the favorable developments in credit markets and the ongoing recovery in economic activity, the CBT has, to a large extent, completed the process of reversing the temporary liquidity measures implemented during the crisis period. Accordingly, overfunding of the markets was halted and the required reserve ratios were increased. Moreover, to facilitate the use of alternative macroprudential policy tools, the remuneration of required reserves was terminated and the operational framework of liquidity management was changed.

Credit is based on real savings and savings can only earn a return if directly invested in creating activities. Finance and the real economy are closely linked. In the Islamic system, banks can neither carry highly leveraged exposures nor acquire risky financial structured products. By the way, even if the Islamic nature of their finance is not the only explanation, we can note that Islamic finance countries, compared with those of conventional finance, have been relatively less impacted by the crisis. But on the other hand, Islamic banks pose risks to the financial system that in many regards differ from those posed by conventional banks, with respect, for example, to liquidity, operational and legal risks. Indeed, Islamic banks face specific obstacles in liquidity management, as the prohibition of interest has led to the underdevelopment of funding sources. Moreover, operational risk and legal uncertainty can be amplified by the lack of product standardization and the lack of harmonization of Islamic standards, with for example possible differences between Shariah scholars' interpretations, accounting standards, and so on. In the same way, prohibition from financing specific sectors limits the kind of eligible assets for investment, which contributes to increasing the risk of concentration in potentially cyclical sectors such as real estate. This is what happened in certain Gulf countries. •  As the analysis of the principles of Islamic finance does not settle the issue of the relationship between Islamic finance and financial stability, it needs to be supplemented by an empirical analysis.