In line with our consistent message of supporting a smooth transition there is a ‘risk management’ exemption to help firms support their clients as liquidity in Libor decreases and end users actively transition to more robust alternatives. [5] I will, however, offer a warning to those firms regulated by the Prudential Regulatory Authority (PRA) who may be guilty of what I’ll call ‘lazy’ behaviors in unnecessarily sustaining Libor linked contracts. UK supervisors have been consistent and clear that they support the industry-agreed milestones of the RFRWG and have set their expectations in line with these. Across regulated firms the necessary reporting is in place and your supervisors will be speaking to you. The transition away from Libor is a risk management issue and relevant senior managers in firms will be responsible for ensuring suitable policies and oversight are in place. Firms regulated by the PRA in the UK that fail to prudently manage transition will be treated in the same way as firms demonstrating any other risk management / governance failings. As in other jurisdictions, lending markets have presented their own challenges. Market conventions and relevant infrastructure to support the use of overnight rates have been slower to settle and implement. But the industry and authorities have worked through these challenges together, and we see overnight SONIA compounded in arrears is now being actively used across billions of pounds of GBP facilities. [6] This includes bilateral, syndicated and multicurrency deals across a wide range of domestic and international users spanning a large range of commercial sectors.

On the assumption that the three-month Libor rate will remain stable at 0.75% during the next three years, inflation should average 0.7% in 2003, move up to 0.9% in 2004 and reach 1.6% in 2005. Forecast inflation will remain below 1% until the end of 2004 except in the fourth quarter of 2002. In the course of 2005, however, a marked acceleration will set in, with forecast inflation reaching the 2% mark in the fourth quarter of 2005. The new forecast is consistently below that of June 2002. It reflects the delay in the economic upswing. In the new forecast, inflation will rise more markedly at the end of the forecasting horizon due to an even more expansionary monetary policy since June. Expansionary monetary policy to be continued At our last media conference, I pointed out that the National Bank must be prepared to react quickly to changes in the economic situation. When the delay in economic recovery became discernible in summer, we acted immediately by again lowering interest rates. Since then, nothing of basic significance has changed in our assessment of the situation. We shall adhere to our expansionary monetary policy in the foreseeable future. We will thus contribute to the economic rebound and continue to keep Swiss franc investments unattractive. The low interest rate level and the relatively strong growth of monetary aggregates currently do not represent a threat to price stability. Once a sustained economic recovery becomes discernible, we shall have to review our monetary policy and adjust it to the new circumstances.