Some inflation targeting central banks – Norway, New Zealand and Sweden – are now publishing charts which show how they expect to change policy rates to achieve their targets 6 . Should the MPC follow this trend? If you follow press reports of our regular Inflation Report forecasts, you might be forgiven for thinking we already have. But actually no: our forecasts take market expectations for interest rates as their starting point, and we leave commentators to draw their own inferences. We have maintained the position that we do not give hints about future interest rate changes. Naturally we are looking closely at what happens elsewhere and we will want to learn from their experience – though of course, since the MPC is not a consensual body, it would be a significant complication to get it to agree an explicit path for interest rates. 6  In addition, the Bank of Canada now includes text in its monetary policy report which indicates whether or not rates will have to change from their current level to meet the inflation target. BIS Review 20/2007  5  Have we become prisoners of our past success? Let me come, finally, to the biggest, and most difficult of the issues I want to raise tonight – namely the extent to which the stability of the past decade has conditioned expectations of what the MPC can and should do, in ways which may be both helpful and unhelpful to its ability to do its job.
In this context, an exact definition of the responsibilities of the SNB and FINMA is of central importance for optimal macroprudential supervision and regulation. The revised Memorandum of Understanding between the SNB and FINMA is an important step in this direction. Secondly, to ensure that the institutions involved can optimally carry out the roles assigned to them, it is also important to give them the right tools. In concrete terms, this means that the SNB would, for example, need to have more extensive information about the stability of financial institutions – regarding their risk exposure, interdependences, etc. – or it would require specific instruments enabling it to take the right decisions when implementing macroprudential policy. Thirdly, the crisis made it clear that closer international cooperation between regulatory authorities is vital. Functioning international coordination mechanisms are required to counter future crises earlier and more effectively. International cooperation is the only way to check undesirable developments on the globalised financial markets. BIS Review 121/2010  5  Conclusion Ladies and gentlemen, the stable economic growth and low inflation of the last two decades could not prevent the emergence of vast imbalances in the global financial system, as the financial and economic crisis clearly showed. Such massive economic shocks are bound to have an impact on how central banks work. Nevertheless, ensuring price stability remains our top priority. The crisis made it evident that central banks have an effective set of instruments that can be used to mitigate the negative impact of financial crises.