The Islamic banking sector as a whole is highly exposed to the property sector – real estate, commercial property and construction – and as events in the advanced markets have recently reminded us, this sector can and does experience significant cycles of activity. The asset-based business models favoured by many Islamic banks have not been tested in a downturn.
12 Currently, there is a greater dispersion than usual of views about future inflation in survey responses. Previously this reflected a rise in expectations for significantly above-target inflation, but now that dispersion also reflects expectations on the part of one quarter of respondents that prices are likely be the same or below their current level 5 to 10 years in the future.