often diverge quite significantly from those of the analysts. ( i should point out that we often get confusing or conflicting information when distinguishing between the expectations implicit in the 5 -, 10 -, and 20 - year bonds. ) over the past few years, average inflation expectations, as shown in the ber surveys, have been relatively stable but deteriorated slightly in the latest survey. average expectations have been close to or, at times, slightly above the upper end of the target range, although there is generally a variation between the different groups. the expectations of both business and labour are often above those of the analysts, although over time there has been some convergence between the three groupings. research by the bank suggests that the expectations of business and labour respondents tend to be more adaptive. so trying to make sense of the different expectations is often quite difficult, and they cannot always be taken at face value. furthermore, for reasons mentioned earlier, the bank focuses less on near - term expectations than on longer - term expectations. it should not come as a surprise if shocks to the economy ( for example oil price shocks ) cause near - term expectations to change. but focusing on the longer term can also be a challenge as the signals are not always clear. for example, in the most recent ber survey, short - term expectations deteriorated ; over the two - to - three - year time horizon inflation expectations improved, on average ; but over a five - year horizon they deteriorated. a two - year horizon is consistent with the lag between a change in the policy rate and its full impact on inflation ( our models show an 18 - month distributed lag for the full effects of an interest - rate change to be felt ). since 2012, the average five - year inflation expectation measured each quarter has varied in the narrow range of 5, 8 per cent and 6, 2 per cent, with the latest reading at 6, 0 per cent following two consecutive months at 5, 8 per cent. this is concerning as it is uncomfortably close to or at the upper end of the inflation target range. at this stage, we still do not have a clear view of how inflation expectations are formed, bis central bankers ’ speeches particularly over longer - term horizons. we would like to think that inflation expectations are well anchored because of the credibility of the bank, but we also recognise that these could be a reflection of past inflation. the persistence introduced by the wage - bargaining process and relatively low levels of competition in parts of the product

integration in asia. this should be viewed positively, not only towards the unwinding of the global imbalances, but also because this has the potential to contribute towards global growth. the banking sector in asean and the greater asian region will have an important role in facilitating this trend. islamic banking in particular, which is a form of financial intermediation that is directly linked to trade and investment flows, has significant potential to facilitate this process. islamic finance requires all financial transactions to be supported by an underlying economic activity. there is now a renewed focus in the global community on generating real economic activity, generating jobs and generating overall financial stability. following the developments that have led to the current global financial crisis, there is a greater recognition for the need to reduce the decoupling of the expansion of financial transactions and the growth of the real economy. this is in fact a fundamental requirement in islamic finance thereby resulting in a close link between financial and real flows. in malaysia, the islamic banking sector continues to progress, recording double digit growth over the recent 8 years with an average annual growth rate of 20 % in terms of assets. as at the end of 2008, islamic banking has increased its share of assets in the banking sector to 17. 4 %. the assets share of the takaful industry grew at 23 % per annum in the recent five years, with family and general takaful capturing 11 % and 7 % respectively, of the overall insurance sector. the mifc initiative has focused on promoting malaysia as an international islamic financial hub, in particular in sukuk origination, foreign currency business, takaful, research and talent development. there has been a growing number of mifc players with diverse business activities that range from international islamic banking business in foreign currency to islamic fund and wealth management, takaful and sukuk origination. the global sukuk market has expanded by an annual growth rate of 40 %. despite a slowdown in the sukuk issuance in 2008, there was still an estimated usd20 billion issuance taking place, with malaysia remaining as the main issuer in the global market. the prospect of islamic finance continues to remain positive despite the more challenging international environment. the global financial crisis has resulted in heightened calls for more transparent forms of banking that are subject to stricter governance and risk management practices. there are also greater demands for increased regulation. following the financial reform that may take place, the world may see a banking system that is significantly different