Meanwhile, the government’s commitment to reform state owned enterprises (SOEs) is commendable. In particular, automatic pricing mechanisms for fuel and electricity are expected to be introduced in March and September 2018, respectively. This will go a long way towards reducing the future financial losses of key SOEs and avoid large ad hoc adjustments in retail prices. Not only will this be supportive of the effective conduct of monetary policy, but it will also have a positive impact on the balance sheets of both the government and the state banks. As we know, the Central Bank alone cannot manage inflation and inflation expectations in the economy. It cannot influence supply side factors affecting inflation. Although monetary policy is effective in controlling demand driven inflation, the support of the government is essential in managing supply side pressures on inflation. In this regard, timely support of the government is necessary in dampening supply shocks, thereby anchoring inflation. Several key milestones need to be reached over the next three years through the joint efforts and the commitment of the government and the Central Bank to fulfill the key prerequisites of the FIT framework. Legal amendments, continuation of fiscal consolidation, institutionalisation of the required changes to the monetary and fiscal policy processes, and building awareness and the confidence of the general public are the priorities in the near future before the official transition to the FIT framework by 2020. 15  In this regard, as mentioned, we have devised a Road Map for adopting FIT, outlining the necessary reforms and innovations.
As a background to my comments on the topic of this panel, “Where do central banks go from here?”, let me note that, as the world economy recovers from the recent financial crisis and the Great Recession that followed, a debate is underway regarding the causes of the crisis and how to reduce the risk of future crises. The role of monetary policy and its relation to financial stability are also under debate. Some blame the Federal Reserve, saying that its monetary policy was too expansionary after 2001 and that this laid the foundations for the crisis. The lesson to be drawn, they argue is that there is a need to modify the framework of flexible inflation targeting and give a greater role to financial-stability considerations. In my view, the crisis was largely caused by factors that had very little to do with monetary policy. Instead, it was mainly caused by regulatory and supervisory failures in combination with some special circumstances, such as low real interest rates around the world and housing policy in the United States. Neither do I share the view that there is a need to fundamentally modify the framework of flexible inflation targeting. Ultimately, my main conclusion for monetary policy is that flexible inflation targeting – applied in the right way and in particular using all the information about financial conditions that is relevant for the forecast of inflation and resource utilisation at any horizon – remains the best-practice monetary policy before, during, and after the financial crisis.