These expectations may also have contributed to imprudent risk-taking which, once the crisis started unfolding, led to real losses. Banks’ capital requirements and liquidity buffers had not kept pace with the growing risks as serious short-comings in risk measurement within the Basel framework became apparent once the crisis hit.
Incidentally, while CPIX data is not officially available before 1997, the Reserve Bank estimates that CPIX inflation would have peaked at between 17 and 18 per cent in 1991 and 1992 - a full 10 per centage points higher than where it now stands.