In the current crisis, the securitization boom and the easing of monetary policy in the US helped fund the loan growth, while in the case of the Asian financial crisis, it was the large capital inflows in the form of direct borrowing that funded the credit boom. In both cases, however, poor underwriting standard by banks was an important common contributing factor. Looking back, the Asian financial crisis has been an important turning point for policymakers in the region, as the lessons learned from the crisis had led to many important policy reform initiatives, all of which aimed at strengthening the robustness and the risk management discipline of the domestic financial systems, and this brings me to my second point. BIS Review 96/2009  1  In the case of Thailand, after having restored financial stability in the early 2000s, financial reform became a top priority, with emphasis on instilling prudent regulations and strong risk management. We adopted a macro-prudential approach in the early 2000s, in recognition of the systemic linkages between the financial system and the increasingly opened macroeconomic conditions; utilizing our natural institutional advantage as we continue to oversee both monetary policy and financial institutions supervision. Hence, from 2003 to 2006, a series of macro-prudential measures were introduced, aiming at restraining then the rapid growth of credit, especially credit card loans and mortgage loans.
The journey has not been entirely problem-free, and the experiences we have gained on the way have prompted us to make some changes to practical aspects of policy, or perhaps rather as regards how policy is communicated to the public. We have also had to change and improve our analysis of inflation in different respects. I intend today to touch upon the problems we have encountered on our journey and how we have tried to deal with them. Important to have explicit communication So what difficulties have we encountered as regards defining the inflation target in terms of the change in the CPI? To illustrate this I need first to say a few words about the principles that underlie the Riksbank's interest rate decisions. Like other central banks that have adopted inflation targeting, the Riksbank has worked from the premise that monetary policy affects inflation with a certain lag; it is generally assumed that it takes one to two years before a rate adjustment achieves its full impact on inflation. Against this background, and as a step towards clarifying how we try to attain our target, we have formulated a simple rule for monetary policy: if the forecast of inflation one to two years ahead exceeds 2 per cent the repo rate should normally be raised, and if the forecast is below 2 per cent the repo rate should normally be lowered.