In the November MPR forecasts, the MPC shortened the window for the conditioning assumption on market expectations of Bank Rate13 (Chart 8). This gave a path for expected Bank rate which still peaked at 5.25% and which, together with all the other assumptions and judgements, resulted in a forecast for a more prolonged recession and forecast inflation declining to well below the 2% target by the end of the second year of the forecast and to zero by the end of the third year. In response the MPC took the unusual collective step of communicating that we thought the assumption for Bank rate on which the forecasts were conditioned was too high. Responding to increased uncertainty I’ve set out some of the key sources of uncertainty over the last year and how the MPC adapted our forecast assumptions and judgements in response. Now I want to bring together in one place some personal observations on how the MPC has developed its approach to the forecast and to setting and communicating monetary policy, and how that has framed my thinking. 13  The Office of Budget Responsibility used a similar approach for their forecasts. Bank of England  Page 12  In a speech I gave back in July 2021, I set out the hope that as the influence of the pandemic waned, the MPC would be able to rely more on its forecasts to navigate a path for setting policy to meet the inflation target. Things haven’t turned out that way.
At best, some  BIS Review 44/2004  1  small banks might be required to allocate capital for operational risk through the basic indicator approach. In the case of larger institutions, they will be allowed, at first, to implement only the foundation IRB approach. For the advanced IRB approach more time will be necessary for the banks to improve database quality and for supervisors to improve their experience in validation. Also for operational risk, in the first moment, only the alternative standardised approach will be available. The advanced measurement approaches will have to wait a while longer. No significant impact is expected in terms of capitalisation levels after Basle II. As previously explained, current capital requirements in Brazil are 11% and this buffer has allowed banks to face periods of high volatility with no major impact. Two important challenges expected in the implementation of Pillar I are the construction of adequate databases, either of pooled or individual data, and the incipient stage of operational risk management in the industry. As for Pillar II, with the New Capital Accord, it will be necessary for institutions to further develop their own processes for the internal assessment of capital adequacy and for the supervisory authorities to increase their supervisory focus on such processes. Cross-border supervision is another issue where occasional problems are expected to occur.