Norges Bank has been given an operational target for monetary policy, which means that monetary policy instruments shall be used with a view to maintaining low and stable inflation. The inflation target is set at 2½ per cent. Low and stable inflation is probably the best contribution monetary policy can 9 make to financial stability. This is also supported by empirical studies. However, there have been episodes where bubbles have accumulated in the form of sharp increases in asset prices in the property and financial markets while inflation has been low. Developments in Japan in the 1980s and in the US in the 1990s may be examples of this. When the bubbles burst, the result may be an economic downturn. Thus, developments in the financial and property markets may also fuel more unstable inflation. In principle, it might be appropriate to use the interest rate to counter this. In practice, however, it is difficult to assess whether developments in prices for property and financial assets are sustainable. When Norges Bank concludes that the key rate should be changed, the change will in most cases be made gradually. If special emphasis is placed on developments in financial or property markets when the key rate is changed, Norges Bank will provide an assessment of this. It is Norges Bank’s responsibility to present its view on the risks facing the financial system from a macroeconomic perspective. This is the purpose of Financial Stability, a report published twice a year. Second, the international financial infrastructure must be strengthened.
Mr George’s closing speech at the Euromoney International Bond Congress Speech by the Governor of the Bank of England, Mr E A J George, at the Euromoney International Bond Congress in London on 10/02/99. Thank you, Padraic. I wasn’t quite sure what you had in mind when you asked me to wind up this Congress once again this year. I couldn’t remember what I’d done to wind you all up last year! But I am happy to join you anyway at what has become – in five short years – an unmissable event in the calendar for anyone with an interest in the international bond markets. And what an extraordinary year it’s been since we all last met here. Despite all the upsets – beginning in Asia, then Russia and most recently Brazil – which had everyone scrambling for liquidity and desperate to reduce risk, it proved, on IFR’s figures, to be a record year for international bond issues, with total issuance rising by some 17% to over a trillion dollars equivalent. That can’t have been bad for fees! And altogether it suggests you had a pretty good year – apart from those of you who chose to go on holiday in August leaving someone else to look after your long positions in Russian bonds. Inevitably issuance by emerging market economies fell away, but issuance by supranational and sovereign borrowers in aggregate still accounted for some 30% of total issuance.