BIS central bankers’ speeches  1  The emerging global regulatory paradigm Following wide-ranging discussions and consultation, the global regulatory community has made progress to strengthen the resilience of the financial system. The Basel Committee on Banking Supervision has strengthened global minimum capital standards as part of its Basel III Framework. The Financial Stability Board (“FSB”) has released guidelines to reduce the risks posed by systemically-important financial institutions, or “SIFIs”. MAS welcomes the Basel III reforms. They will strengthen the resilience of individual banks during periods of stress, and in doing so, contribute to banking sector stability. Basel III is a major step forward in several areas: (i)  First, it strengthens capital requirements for trading activities, off-balance sheet vehicles, securitisation, and counterparty credit derivatives. (ii)  Second, it improves the quality of capital, with a greater focus on common equity to absorb losses. (iii)  Third, it raises the level of capital that banks will have to hold to absorb losses in both going-concern and unwinding scenarios. (iv)  Fourth, it introduces international liquidity standards for the first time, to make banks more resilient to short-term funding disruptions and longer-term liquidity mismatches. The FSB is finalising its recommendations for global systemically important financial institutions, or G-SIFIs. This will comprise a package of measures, the most important of which are quite clear:   First, G-SIFIs will have to meet higher capital requirements, above the Basel III minimums. This is to reflect the greater risk that their failure would pose to the financial system.

The changes in our assumptions have led us to revise our inflation forecasts for end-2011 upwards by around 35 basis points. Since the launch of inflation targeting in 2006, the CBRT has been announcing its mediumterm inflation forecasts and providing a qualitative perspective regarding the outlook for policy rates. As I have mentioned earlier in my speech, the current economic climate prompted the CBRT to consider financial stability along with price stability, which in turn required the diversification of policy tools. Accordingly, we adopted a policy mix made up of required reserve ratios and liquidity management facilities, besides policy rates. Given the significant level of uncertainties concerning the global economic outlook in the upcoming  12  BIS central bankers’ speeches  period, we believe that there should be flexibility regarding the direction and course of each instrument within the policy mix. Therefore, this Report will provide forecasts for the net effect of the policy combination, and will not outline any specific path regarding its sub-items. Now, I would like to present our inflation and output gap forecasts produced within the framework outlined so far. Assuming that the policy mix is suited to deliver an additional limited monetary tightening during the rest of 2011, inflation is expected to be, with 70 percent probability, between 4.5 and 7.3 percent with a mid-point of 5.9 percent at end-2011, and between 3.3 and 6.9 percent with a mid-point of 5.1 percent by the end of 2012.