Third, the risk of bouts of high financial volatility remains, and this could push prices higher through the exchange rate channel. The upside risks are especially significant as annual headline inflation will probably surpass 4 percent most of this year, and analysts’ inflation expectations for all time frames remain above the permanent target. These challenges merit careful monitoring.
The requirement for a real asset to back financial assets can be met in many other ways than by financing the construction of office buildings, shopping malls or luxury apartments. The industry should look instead at the scope for increasing the finance it provides for productive assets such as factories, ports, mines, and oil processing facilities.