I can’t say that monetary policy will perfectly anticipate every twist and turn of the economy. We will continue to be surprised by events and need to adjust policy accordingly. But I can assure you that the MPC remains as committed and as focused as ever in our determination to hit the inflation target. 15  This distinction between nice and not nice reasons for raising Bank Rate was made in an interview by Charlie Bean with the Western Mail on 1 February 2011. 8  BIS central bankers’ speeches  BIS central bankers’ speeches  9  References Batini, N, and E. Nelson (2005), “The U.K.’s Rocky Road to Stability”, Working Paper No. 2005–020A, Federal Reserve Bank of St. Louis. Bean, C (2011), “The MPC’s policy dilemma”. Speech at ABI’s Economics and Research Conference, London, available at: http://www.bankofengland.co.uk/publications/speeches/2011/speech479.pdf Benati, L (2006), “UK monetary regimes and macroeconomic stylised facts”, Bank of England Working Paper, No. 290. Benati, L and Mumtaz, H (2007), “U.S. Evolving Macroeconomic Dynamics: A Structural Investigation,” European Central Bank Working Paper N. 746, April 2007. Brazier, A, Harrison, R, King, M and Yates, T (2008), “The Danger of Inflating Expectations of Macroeconomic Stability: Heuristic Switching in an Overlapping-Generations Monetary Model”, International Journal of Central Banking, June 2008. Campa, J and Goldberg, L (2006), “Distribution margins, imported inputs, and the sensitivity of the CPI to exchange rates”, NBER Working Paper No. 12121. Carroll, C (2003), “Macroeconomic expectations of households and professional forecasters”, Quarterly Journal of Economics, 118(1): 269–98. Dale, S (2010), “Inflation, Inflation, Inflation”.

In addition, robust internal  BIS Review 40/2003  3  controls which are designed to provide qualitative standards are also necessary to complement the quantitative analysis of risk and provide a check and balance in the overall risk management practices. The Malaysian experience Let me now take the opportunity to share with you Malaysia’s experience in addressing some of these issues. The blue print for the development of the financial sector in Malaysia is outlined in Financial Sector Masterplan that was released about three years ago. The Masterplan is all about determining the future directions of the financial system and to define the financial structure that is most appropriate to our requirements as our economy moves to the next stage of development. It therefore provides the direction and common purpose for all the relevant parties in the financial sector, the industry, the market participants, the regulators, and the government. In emerging economies, the role of the government and the regulator is important in particular to prioritise policy goals, build the infrastructure, provide the legal and supervisory framework, and in addressing market failures. The key emphasis of the plan is to move toward a more diversified and balanced financial structure with a strengthened institutional framework, enhanced market infrastructure and practices, and an appropriate regulatory environment in line with the transformation that has taken place. The Asian crisis highlighted the vulnerability associated with fragmented financial systems and the risk of excessive reliance on the banking sector.