While the focus of this Summit will be on Islamic finance, it is inevitable that the discussions today will touch on the recent developments in Europe, given the potential impact it may have on the rest of the world and the need to implement strategies and policies for coping with the consequences of these developments. While the financial solutions being implemented in managing the crisis and the measures being introduced to mitigate the impact of the crisis by the rest of the world is important, it can only provide temporary relief. It is the structural policies and reforms that are more challenging to undertake that will ensure fundamental financial stability and a long lasting self sustaining economic recovery. My remarks today will focus on the changes in the Islamic financial landscape and its increased potential to contribute to sustainable growth, increased international connectivity following the increased pace of internationalisation of Islamic finance and new developments to achieve financial stability in the Islamic financial system. The changing financial landscape and the accelerated expansion in Islamic finance have also resulted in changes in the nature of the supporting ancillary services, including education that is being provided for the business and financial sectors. Islamic finance and fostering sustainable growth As the Islamic financial system evolves to become more diversified and more comprehensive to meet the changing requirements of the real economy, it is increasing its potential to fostering sustainable growth.
I judge that there are some upside risks to inflation, should confidence about achieving the 2% inflation target in the medium run be lost. But there are also downside risks if growth remains very subdued. As long as medium-term inflation expectations do remain consistent with our objective – in particular as long as wage growth remains so weak – I believe that we can and should continue to support the economy through the supply of money. But there is a case for taking a slightly longer-term approach than previously. Because of the underpinning from regulated and administered prices, and the fact that the economy is currently flat rather than contracting, I think the risk of deflation is considerably reduced. Rather than a very large, rapid programme of asset purchases to avoid an imminent slump – as was needed in 2009 and again in 2011/12 – a slower, more gradually supportive policy might be more appropriate and less risky to nurse the economy through the next phase of recovery. It is sustained momentum that the economy needs now rather than emergency action. Because of that, in February I voted for an additional £ over 3 months thinking that this could be the first instalment of a more prolonged run of purchases at a somewhat slower pace than previously, and with a relatively modest addition to the total by the end. If we were to do that, then it would be straightforward to accelerate or to stop purchases as the economic outlook developed and the risks became clearer.