growth or a fast catching - up processes, such as one would expect in normal upswings – and despite monetary policy remaining accommodative. to explain this apparent contradiction, some observers have pointed to the risk of secular stagnation, arguing in particular that advanced economies such as the us have been trapped in a persistent state of economic depression in which the natural interest rate – the real interest rate consistent with output at potential and / or stable inflation – has become negative. 4 a negative natural rate could reflect reduced demand for debt - financed investment, declining rates of population growth, changes in the distribution of income leading to a higher propensity to save, or a trend towards an accumulation of larger foreign exchange reserves by central banks in many regions. in this configuration, it is argued that the lower bound on nominal interest rates and low inflation constrain monetary policy from generating sufficiently negative real interest rates to stimulate demand and match saving and investment. in other words, the economy enters a liquidity trap in which monetary policy becomes ineffective in the presence of a lower bound on nominal returns. against this background, some observers have advocated that central banks increase their inflation objective to guard against the risk of hitting the zero lower bound in the future. 5 let me say upfront that this proposal seems to me ill - advised. price stability has been a difficult terrain to conquer and it took us considerable time and efforts to do so. the costs of higher inflation certainly outweigh the hypothetical benefits of raising inflation targets. and one important lesson of the crisis is that central banks have a large set of instruments at their disposal to deliver their objective, even when approaching the zero lower bound. having said that, how does the secular stagnation hypothesis apply to the euro area perspective? it is true that the on - going rebalancing process in the euro area – and the associated shifts in the relative supply of private savings and demand for loans – will tend to affect the natural interest rate. in particular, downward pressures can be expected from increased saving and see summers, lawrence h. ( 2014 ), “ u. s. economic prospects : secular stagnation, hysteresis, and the zero lower bound ”, business economics vol. 49, no. 2, pp. 65 – 73. see blanchard, olivier, giovanni dell ’ aricia and paolo mauro ( 2010 ), “ rethinking macroeconomic policy ”, imf staff position note spn / 10 / 03.

zeti akhtar aziz : islamic finance - promoting the competitive advantage keynote address by dr zeti akhtar aziz, governor of the central bank of malaysia, at the islamic bankers ’ forum 2005 : islamic finance - promoting the competitive advantage, putrajaya, 21 june 2005. * * * “ islamic finance has become a competitive form of financial intermediation that has been able to meet the differentiated requirements of our economies. in an environment of rapid change, a key factor that will influence the future prospects of the islamic financial services industry will be the investments to build the foundations on which further progress can be achieved. investing in the future, in research and development and in the development of talent and expertise will be the differentiating factor that will contribute to the effectiveness, resilience and competitiveness of the industry. this undertaking needs to be the joint responsibility of both the private and public sectors to mutually elevate the performance of the industry and thus increase its potential to contribute to wealth creation and prosperity of our nations. ” your excellencies, distinguished guests, ladies and gentlemen, it is my honour to be invited to speak at this islamic banker ’ s forum organized by the general council for islamic banks and financial institutions ( cibafi ) on the strategic approach in developing a progressive islamic financial system. the occasion of this forum is indeed an excellent opportunity for the industry practitioners, regulators and academia to deliberate on the key issues that are important to the future of the islamic financial services industry. my remarks today will focus, in particular, on the issues relating to innovation, which is indeed derived from the investment in research and development, and from the investment in the workforce in the sector. innovation is key to sustaining growth and securing the competitive advantage. innovation is about developing new islamic financial products and services and increasing the range of products and services to meet the more sophisticated and complex requirements of today ’ s consumers and businesses. it is also about improving the overall efficiency by which the products and services are being provided. innovation will also involve the introduction of new structures that may contribute towards enhancing convenience for consumers and businesses. finally, it may also contribute towards creating new markets or expand the existing markets for islamic products and services. industry practitioners thus have an important role to promote innovation. financial institutions need to equip their business strategies with research and development to design new innovative products and services. such innovative financial products and services which are credible, competitive and shariahcompliant would indeed find a ready market