foreign islamic subsidiaries in our islamic financial system is also part of the initiative to enhance the outreach of islamic finance and to strengthen our international linkages. it reflects part of the further liberalisation of the islamic financial services industry in malaysia. foreign islamic subsidiaries have the potential to promote innovative product development and enhanced international integration of the islamic financial system. firstly, by leveraging on the global networks available, foreign islamic subsidiaries are well positioned to engage in innovative product development in a more cost effective manner. malaysia provides an enabling platform such structuring of islamic financial products and instruments. the recent establishment of the international shariah research academy ( isra ) as a premier research entity has further enhanced the infrastructure to facilitate this innovative process. isra focuses on applied research in shariah and islamic finance, and provides the avenue for greater engagement between industry players and scholars. in addition, the tax neutrality treatment, has paved the way for the introduction of innovative products such as ijarah munthahiah bithamleek ( leasing ending with ownership ) and musharakah mutanaqisah ( diminishing partnership ) in home financing, and currency option using the concept of hamish jiddiyah ( security deposit ) and tawarruq ( monetisation ). secondly, foreign islamic subsidiaries have an important role in enhancing the international linkages of the islamic finance industry regionally and internationally. reinforced by a well developed legal, regulatory and shariah framework and with three decades of experience, our islamic financial system offers a unique platform as a meeting place between those that require funds and those with surplus funds. malaysia has the full complement of the financial infrastructure, products and institutions. this is reinforced by the adoption of international regulatory best practices and liberal foreign exchange administration rules. this environment has encouraged the issuance of ringgit denominated sukuk by multilateral institutions and foreign multinational corporations in our market. it has also increased participation of investors in our islamic financial markets. in a number of the sukuk issuances, the foreign subscribers ( other than from asian region ) represent more than two thirds of total subscribers. given the investment opportunities in the east asian region, there are significant potential business activities, especially in the asia - pacific region. to optimize the business potential, islamic financial institutions need to develop their niche strengths and leverage on malaysia's resources to extend the operations to both the regional and global market. as a foreign islamic banking subsidiary, the potential to provide

times. so the bar for change is high. where we were in 2011 in the run - up to the 2011 renewal, the bank focused its research on three questions : whether to adopt a lower inflation target ; whether to move to price - level targeting ; and how monetary policy should take account of financial stability considerations. these questions were not new. but the global financial crisis cast them in a different light. bis central bankers ’ speeches let me outline where the bank came out on each of these three questions in order to give you some context for the discussion that follows about our current research. 1 should we target a lower rate of inflation? canada, like most other inflation - targeting central banks in advanced economies, has been aiming at an inflation target of 2 per cent. why 2 per cent? we know that high and variable inflation is costly. it erodes purchasing power, creates uncertainty, distorts relative prices and investment decisions, and causes arbitrary redistributions of wealth between savers and borrowers. so the inflation target should be low enough to minimize these distortionary effects. at the same time, there are risks associated with very low rates of inflation, the most important being the zero lower bound ( zlb ) on interest rates. the lower the inflation target, the lower the average nominal policy interest rate will be. therefore, the greater the likelihood that adverse shocks will push interest rates to the zlb and hence limit the central bank ’ s ability to respond with conventional policy. a positive inflation rate also helps to “ grease the wheels, ” since it is less likely that the economy will be constrained by downward nominal wage rigidity. 2 another argument for a slightly positive inflation target is that official price statistics are subject to measurement bias, in effect, overstating true inflation. 3 would there be net benefits to targeting an inflation rate lower than 2 per cent? a lower target is intuitively appealing, since even with 2 per cent inflation, the price level doubles every 35 years. a lower target could further reduce distortions stemming from incomplete indexation of nominal contracts and the tax system, and the disincentives for holding money. the bank ’ s research leading up to the 2011 renewal strengthened the case for lowering the target. however, our research and the experience of the crisis also highlighted the sizeable risks associated with the zlb. while unconventional monetary policy ( ump ) instruments, such as asset purchases and forward guidance, appeared to provide stimulus, their benefits and costs would only be known