Since 2003 major stock exchange indexes in CEE increased on average by almost 300 percent. While part of this asset price and credit growth may be explained by structural factors often referred to as “convergence”, the observed rates of growth are clearly unsustainable and they contribute to economic imbalances. With the benefit of the hindsight one could argue that monetary policy in the last few years did not properly take into account the possibility that prolonged period of historically low interest rates may contribute to asset bubbles and hence contribute to greater inflation  1 2  See IMF (2000) Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Slovenia, Slovakia. BIS Review 137/2007  1  volatility in the future. As argued by Rogoff (2006) when faced with a tail wind monetary authorities in both developed and developing world should have temporarily lowered the inflation target rather that reduce interest rates too much for too long. But there is another issue. It seems that globalisation tail wind is reversing these days and that in the coming few years central banks can face “globalisation headwind” amid rising food and energy prices. 1. Agflation is the rise of inflation due to increase of food prices. In recent months we have witnessed a significant increase of food prices, grain and oilseeds being the leaders. Prices of food products on international markets has risen by almost 40 per cent within last two years and prices of grain and oil seeds has almost doubled within this period.
In addition, as returns in Islamic banking are uncertain and can only be ascertained on an ex-post basis, well-developed IT systems can equip Islamic financial institutions with the ability to make projections on future returns to reduce the degree of uncertainty in the returns to be paid to the depositors. This would enhance credibility and strengthen the competitiveness of the Islamic financial industry. Conclusion The future prospects of the Islamic financial services industry will be the result of the combined efforts of all the relevant entities in the financial sector - the industry, the regulators, the market participants and the international community. These collective efforts need to be galvanized as a coordinated and concerted effort to maximize the potential for the industry. Evolving the shared vision and common goal to be achieved will be an important first step. Of greater importance will be the actions that need to be taken to make this happen. It will be our actions and initiatives taken today that will contribute towards determining the future that we aspire. 4  BIS Review 20/2004