However, I personally thought there were a number of factors in the global economy that made the forecast unusually uncertain. Prior to the meeting in July, there had been considerable fluctuations in the financial markets, which were largely due to the uncertainty over when the Federal Reserve will begin phasing out its quantitative easing. There was also uncertainty over what effects the problems in the Chinese banking sector would have on the Chinese economy and also, as has been the case for a long time now, over developments in the euro area. Economic developments in the euro area are still marked by the need for the private and public sectors to reduce their debt, which is a process that will of course take a long time. However, compared with one year ago, developments had been in the right direction in most of the problem countries and a number of measures had been taken that led to interest rates  BIS central bankers’ speeches  1  falling to lower levels. Our assessment in July was based on the assumption that the reform process would continue and the forecast was that GDP growth in the euro area would remain weak but gradually increase. However, the slow recovery means that GDP will not reach the same level as prior to the decline in 2009 until 2015.
Starting with monetary policy, the primary aim at the current juncture is to strike the right balance between accommodating domestic recovery while ensuring stability in the long-term. As mentioned earlier, recent monetary policy actions were geared towards temporarily addressing risks to growth. In the context of a sharp contraction in economic 2  BIS central bankers’ speeches  activity from the floods, moderating inflationary risks, and pronounced headwinds from the global economy, the MPC judged this to be most appropriate. Such policy actions have helped to shore up confidence and hasten the recovery process. However, with clearer signs of a pickup in economic activity and the recent rise in global oil prices, upside risks to inflation has become more elevated. It is unlikely though that inflation would accelerate to the extent that would threaten economic stability. Nonetheless, monetary policy will remain watchful as the pick-up in public and private spending and cost-side pressure stemming from various government stimulus packages may add extra inflationary pressure in the period ahead. From a longer-term perspective, let me reiterate our commitment to the inflation targeting framework. Since its adoption over 10 years ago, this framework has endowed monetary policy with a degree of flexibility and credibility that has proved extremely valuable. Especially through trying times with high levels of uncertainty, the framework has imparted a degree of stability by helping to anchor public expectations of monetary policy. In delivering our primary mandate of macroeconomic stability, inflation targeting will continue to be a central pillar.