One example of this is a repo rate path that initially coincides with the grey repo rate path, but then from the middle of 2012 onwards changes over to the yellow path given by market expectations. It may very well be the case that an even lower repo rate path provides an even better outcome for inflation and unemployment. However, more careful analysis and alternative forecasts are needed before the best repo rate path can be established, particularly because so much of the analysis at the most recent  10  BIS Review 158/2010  monetary policy meeting focused on what I consider to be the unrealistic main scenario in the Monetary Policy Report. Given this, I therefore considered at the meeting that the grey repo rate path shown in Figure 9a, with an unchanged repo rate at the meeting and then a gradual rise to a level of 2.7 per cent at the end of the forecast period, which is roughly mid-way between the main scenario and market expectations, would be a reasonable compromise for now, until a new review is made prior to the next monetary policy meeting. Such a discussion could well result in a lower repo rate path.
Before the crisis, when talking about the policy mix anyone would think of the coordination between monetary and fiscal policies. Afterwards, when financial instability has undermined macroeconomic stability, despite low and stable inflation, it became obvious that additional tools are needed in complementing monetary policy in countercyclical management. As macro-prudential tools emerged as the most important candidates, it makes sense to assign the objective of financial stability to the central bank, if the central bank is given control of the supervisory and regulatory instrument. 2  BIS central bankers’ speeches  In the recent period some economists have asserted that central banks tend to fuel speculative bubbles by keeping monetary policy rates too low. This behaviour can create incentives for banks to overleverage or reduce efforts in screening borrowers, or can lead other economic agents to seek more risks in order to yield higher returns. The effects are likely to be worse if monetary policy is too accommodative for too long during expansions. This led to the conclusion that other instruments, which can directly affect leverage or risk taking, are required. Because the cost of cleaning up after an asset-price bubble burst can be very high, as proved by the recent financial crisis, early interventions by the central bank might be needed when a severe bubble is identified. In this context, macro-prudential instruments are the best option, without excluding de plano the recourse to monetary policy instruments.