Recognising the uncertainties it faces, the MPC must manage the balance of risks to the inflation outlook, taking account of the likely costs and duration of deviations from the inflation target. This so-called ‘risk management’ approach to monetary policy has been at the heart of how central banks have managed policy of late, particularly in the face of deflationary concerns stemming from any lower bound on policy interest rates. [5] And it continues to influence thinking now, given concerns that so-called second round effects in price, wage and cost setting behaviour could create a self-sustaining momentum in inflation that persists even after the initial inflationary impulse from higher energy prices recedes. How does all this fit into recent MPC policy decisions? Changes in the MPC’s communication following its February meeting reflect an evolution in the Committee’s assessment of the inflation outlook. While headline inflation is set to ease this year as the large increases in energy bills seen during 2022 begin to drop out of the annual calculation, the evolution of corporate pricing setting, wage developments and services prices is consistent with greater-than-desirable strength in the underlying, more persistent component of inflation. Recognising that its earlier actions are now gaining traction, the MPC needs to ensure that it does  Page 4  enough to return inflation to target, while guarding against the possibility that it does either too much or – for that matter – too little. Finding that balance is the central challenge for monetary policy at present.
This is a long overdue development and I note that the first phase has successfully gone live in September 2017 with four pilot insurers. Its success and benefits will very much depend on achieving the widest possible network effects. We expect all insurers to support these arrangements. Insurers who refuse to participate in this scheme will be looked upon unfavourably. We shall also take note of these recalcitrants’ failure to participate for a common good. Fourthly, insurers and takaful operators need to invest individually and collectively in creating a strong talent pipeline for the industry. We need to take stronger measures to professionalise the insurance workforce and foster the highest standards of conduct and competence. As the benefits of upskilling will accrue to the industry as a whole, talent development should also be a collective endeavour. Only through collective effort can this be achieved. In this regard, I am pleased to announce the establishment of a Talent Development Fund, funded by the industry that will be made available to support professional training and development initiatives for the sector. This will include the introduction of appropriate professional qualifications for key strategic and operational roles in the industry. Finally, there will be deeper engagements with shareholders, boards and management of individual insurers and takaful operators on the development agenda for the industry. We will make clear the areas of development focus in the coming years. Regular engagement with candid assessment of individual company’s performance will pave the way for companies to make more significant contributions to development objectives.