That includes: implementing decisions; monitoring market developments; identifying and, where appropriate, addressing risks to resilience and effectiveness. In many ways the November MPC decision was a historic change in policy – the first increase in Bank Rate in over a decade (Slide 9). I remember the previous increase in Bank Rate well as the July 2007 MPC meeting was the first I attended as the Treasury’s representative. A lot else has happened in the intervening 10 years, but from an operational perspective it was a relatively straightforward change for the Markets area of the Bank to implement. Bank Rate, which is the rate paid on reserve accounts held at the Bank by 183 financial institutions, was changed immediately after the MPC’s decision and used as the basis for calculating interest due for that day. Because reserves held at the central bank are the ultimate liquid and risk-free asset in any currency, the rate paid on them serves as the reference point for all other overnight interest rates in the money market. As a result a range of key overnight market rates increased on the day of the MPC’s decision including the Sterling Overnight Index Average (SONIA, a key benchmark for unsecured overnight borrowing and lending) and the Repurchase Overnight Index Average (RONIA, a key benchmark for overnight borrowing and lending secured against gilt collateral). In the period since the change in Bank Rate, both SONIA and RONIA have been on average 25bps higher than in the month preceding the decision (Slide 10).
While financial markets have improved significantly, real estate problems, bank closures, and significant non-performing loans on the books of many banks continue to provide financial headwinds to the recovery. And clearly – as the headlines of the past week have highlighted – financial problems abroad still have the potential to result in slower U.S. exports, and may hold potential further problems for global financial institutions. In sum, my view is that with inflation expectations stable, core PCE inflation rates declining, and significant excess capacity in the economy, accommodative monetary policy remains appropriate. Thank you. 6  See for example the remarks by Chairman Ben Bernanke at the National Commission on Fiscal Responsibility and Reform on April 27, available at http://www.federalreserve.gov/newsevents/speech/bernanke20100427a.htm. BIS Review 62/2010  5