Monitoring the European Central Bank 3 ". CEPR London 2001 and Lars E. O. Svensson: Independent Review of the Operation of Monetary Policy in New Zealand: Report to the Minister of Finance. February 2001. BIS Review 51/2001  In Norges Bank, we have used both an unchanged interest rate and an interest rate scenario based on market expectations in our inflation reports. If Norges Bank projects price inflation as higher or lower than 2½ per cent, it is an indication that the Bank envisages an interest rate path that is higher or lower than the path on which the projection is based. There is uncertainty associated with all forecasts. This very uncertainty and the central bank’s assessment of the various risk factors constitute important supplementary information. In our Inflation Reports, the uncertainty associated with the projections is discussed explicitly. An account is given of which variables Norges Bank regards as particularly uncertain, which way this uncertainty points, and how a different scenario could influence price projections. In addition, a fan chart illustrating the uncertainty of the projections is presented. Calculations based on alternative assumptions are presented regularly. This illustrates the isolated effect on price inflation of changes in assumptions. It provides insight into the effect on price inflation of potential disturbances to the economy. We base our analyses and assessments of the inflation outlook and balance of risks on models. The RIMINI macroeconomic model, developed in Norges Bank’s Research Department, has been an important tool for the Bank’s analyses since 1994.

Of importance is to ensure that the implementation of the new accord is consistent with the overall agenda and objectives for the financial sector to facilitate growth and economic expansion. Implementation principles for Malaysia In Malaysia the appropriateness of the new accord is being assessed in the context of our own objective to develop a more effective and resilient banking system that is best able to serve the nation. In view of the significant and special role of the banking sector in the economy, a well-capitalised banking system has always been a priority in the regulatory framework. In this context, the principles advocated by the new accord are consistent with our regulatory philosophy that encourages capacity building and enhancing risk management. Effective Basel II implementation strategies would be premised on the industry having the correct understanding of the new framework. To implement the required changes, it is therefore vital that the management of banking institutions understands the principles of the new accord. One common misperception is that the recognition of financial collateral under the new framework will encourage more collateral-based lending within the banking sector. This is a simplistic conclusion given the stringent minimum standards for the recognition of such financial collaterals before banks can qualify for the capital savings. Moreover, the potential capital savings under the new framework is not from the recognition of financial collateral, but rather from the much lower risk weights attached to higher rated loans.