This must be done without haste, but no stone should be left unturned. Improved regulation appears to be necessary in several domains, from rating agencies to risk management, the organisation of financial markets and even the question of compensation. As a contribution to this debate, I would like to make two sets of remarks. One has to do with the fluctuations of financial systems. The other concerns financial supervision. Financial systems that operate in the context of a developed market economy are, by nature, subject to cyclical forces. Some are a consequence of the business cycle. Credit activity is an obvious example, as credit demand is heavily influenced by economic activity. Others are from within financial systems. For instance, financial institutions’ equity position moves in line with asset prices specially in a fair value world where fluctuations result in capital gains or  BIS Review 143/2008  3  losses. This effect tends to be exacerbated when financial intermediaries actively manage their balance sheets to target a preferred degree of leverage. The challenge for the authorities is to assess whether and to what extent regulations reinforce these dynamics and impact the entire financial system. With these questions in mind, work is being undertaken to examine the impact of prudential standards. It is also on this basis that the accounting adjustments that I mentioned earlier have been made. We will have to set up supervisory systems that are more suited to economic developments. The need to develop a “macro-prudential” policy is now under debate.
The NBP projection released in April - which assumes unchanged interest rates at 4 percent - points to economic growth within the range of 4.5 to 5.5 percent in the years 2006-2008 and inflation gradually returning to 2.5 percent target sometime in 2008. The statement issued after the April Monetary Policy meeting stated, and I quote 14 : “The Council maintains its assessment that with large probability inflation will in 2006 Q2 and maybe Q3 remain below the inflation target mainly due to short-term factors. If the developments in the economy were consistent with the April NBP inflation projection, then the current level of the reference rate of the central bank would support a gradual return of inflation to the target over the projection horizon and would also be conducive to keeping economic growth at a pace, which is consistent with the potential output growth, determined by the structural features of the Polish economy. The fact that inflation and core inflation has stayed below the previous forecasts for a relatively long period may be an indication that the impact of the factors which may slow down the returning of inflation to the target in relation to that accounted for in the projection is stronger than previously assumed.