That is one reason the Committee is placing so much importance on an effective Basel II implementation process, which brings me to my next point. Implementation issues From the outset, one of the key objectives of both Basel II and, indeed, the current Accord, has been to maintain a level playing field across jurisdictions. Since experience has shown that this was difficult to achieve even under the fairly rigid Basel I rules, the challenge will be even greater in the more flexible Basel II regime. One of the key lessons we have learned in this whole process is that having similar national rules, which are based on common international agreements, does not of itself create a level playing field. What is essential is how the rules will be applied. The success of Basel II will depend to a large extent on our ability to achieve greater convergence in our supervisory practices in implementing these rules. This will require a much higher level of cooperation among supervisors than hitherto. Home country and host country supervisors will need to work closely with each other and with banks to provide effective supervision while minimising burden and duplication of effort. Although changes in financial markets mean that these efforts would in any case be necessary, Basel II has raised the stakes. To promote convergence, the Committee has established an Accord Implementation Group, or AIG, which is chaired by Nick Le Pan, Superintendent of Financial Institutions in Canada and ViceChairman of the Basel Committee.
In just under a year, we have raised the policy rate five times. This means higher interest expenses for two out of three households. Both in terms of hard cash and as a percentage of disposable income, interest expenses will increase most for households with the highest incomes, which is also the group with the highest debt to income ratios. As things stand now, the rise in prices will be notably higher than wage growth this year. Indebted households will face both higher interest expenses and higher electricity and food prices. Many households will be facing a tighter financial situation, and I am fully aware that some of them will also be facing a financial struggle. Most households will be able to cope with higher interest rates on their loans. Unemployment is very low. Many will be able to cut down on other expenses or draw on their savings. Chart: Monetary policy meeting on 17 August We could have decided to raise the policy rate more gradually. But then we would have run the risk of inflation becoming entrenched at a high level. That would have made it more difficult to bring inflation down and could have required a sharper tightening of monetary policy somewhat further out, increasing the risk of an economic downturn. Inflation has surprised to the upside in recent months. This is why the policy rate has been raised somewhat more rapidly than signalled earlier. And the economy might evolve differently from what we have envisaged. The level of uncertainty is high.