Governments must find ways of protecting the financial system from bank failures without having to resort to bail-outs. I will look at these three lessons in turn, considering the broad international responses we have seen, and looking specifically at what we are doing here in New Zealand.
Recent developments in financial markets, which partly reflect greater uncertainty, have not changed the Governing Council’s assessment of a broadening of the euro area’s economic recovery and a gradual increase in inflation rates over the coming years. The ECB’s monetary policy stance remains accommodative and market-based inflation expectations have, on balance, stabilised or recovered further since our meeting in early June.