Inevitably, this aspect takes on greater importance. For one reason, supervisors expect banks to operate above minimum regulatory capital ratios included in the Basle Accord – and prudent assessments can help to inform by how much. For another, supervisors seek to intervene early enough to prevent capital from falling below prudent levels – and bank assessments can provide another useful tool in identifying key issues before they become major problems. With these thoughts in mind, supervisors are tackling the challenge of developing a more systematic approach to the review of capital adequacy. Supervisors also are discussing ways to enhance market-based discipline. Most agree there should be a greater role for private-sector monitoring of banks. Of course, there already exists a fair amount of market-based monitoring; however, the collection and use of these kinds of information usually are not systematic or complete. The first goal is to improve information available to the market. With enhanced risk disclosure, supervisors will be more able to rely on the opinion of market investors. These opinions are reflected quickly in the price of bank debt and share prices, and the ease with which banks can access capital. By relying more on these market signals, supervisors will be better able to identify and address waning capital levels at problem institutions. To the extent banks develop disciplined internal approaches to evaluating capital adequacy and capital plans, and enhance disclosures, supervisors will be able to place greater reliance on all three pillars and meet the challenges of a more complex financial marketplace.

The direct effects of these factors on inflation are exhausted after a year. Hence these factors do not have any implications for the interest rate, which is normally set with a view to maintaining inflation at 2½ per cent two years ahead. However, it is still interesting to adjust monthly inflation figures for temporary effects to determine whether developments are broadly in line with our projections. This is why Norges Bank presents figures for consumer price inflation where the effects of some temporary factors are excluded. However, the automatic adjustment of inflation figures for direct effects of one-off factors can also be associated with pitfalls. Higher indirect taxes and electricity prices can be a source of accelerating inflation via spillover effects on other prices and wages. BIS Review 47/2001  3  The mandate for monetary policy with an inflation target provides a sound basis for assessing Norges Bank's interest rate setting. Inflation at one point in time, adjusted for certain temporary effects, provides a measure of whether interest rate setting was appropriate. Market participants and others can assess the quality in the inflation reports and analyses published by the Bank, and whether our analyses are consistent with our interest rate setting. The uncertainty associated with economic developments and inflation, as observed since the mid-1990s, may indicate that we normally reach the inflation target within an interval of +/- 1 percentage point. The Government has assigned a task to Norges Bank. Norges Bank uses its professional judgement in a delimited area.