samchain/econo-pairs-v1 huggingface dataset:
These measures keep the attractiveness of Swiss franc investments low and thus ease pressure on the currency. A renewed appreciation would still be a threat to price and economic developments. The new conditional inflation forecast for the coming quarters is higher than it was in September. This is mainly due to increased oil prices and the further weakening of the Swiss  Page 1/4  Berne, 14 December 2017 Thomas Jordan  News conference  franc. The longer-term inflation forecast is virtually unchanged. For the current year, it has risen marginally to 0.5%, from 0.4% in the previous quarter. For 2018, we anticipate an inflation rate of 0.7%, compared to 0.4% in September. For 2019, we continue to expect inflation of 1.1%. The conditional inflation forecast is based on the assumption that the threemonth Libor remains at –0.75% over the entire forecast horizon. Global economic outlook  I would now like to turn to economic developments abroad, as these have a considerable bearing on the inflation and economic outlook in Switzerland. The past few months have seen further improvements in the international environment. The global economy exhibited strong, broad-based growth in the third quarter. International trade, in particular, remained very dynamic. In view of companies’ improved capacity utilisation and growing confidence, investment continued to recover. Developments in employment remained positive, which helped to raise household confidence, too. In most countries, inflation moved sideways. Economic signals for the coming months are positive, as well. We expect the global economy to continue developing favourably.

That day is etched on my memory. I had the incredible good fortune to be sitting on the Bank’s foreign exchange dealing desk that day, watching agog as we lost around £ billion in foreign exchange reserves defending the pound – at the time, real money – despite announcing interest rate rises of 5 percentage points in a single day. How the world has changed. Currently, financial markets expect UK interest rates to rise by an average 5 basis points each six months for the next 10 years. The UK’s exit from the ERM led to a new nominal anchor being needed. And almost immediately, one was adopted – an inflation target. It had one obvious merit: it was the only monetary framework not to have already been tried in the UK. But the track record of inflation-targeting was close to non-existent. At the point the new target was announced, expectations for UK inflation were high (over 5%) and expectations for the framework lasting were low. The collapse in sterling following sterling’s ERM exit, and the expected sharp rise in inflation, meant the wheelie bin beckoned for inflation-targeting. In the event, inflation failed to pick up as much as expected after the ERM debacle. And, behind the scenes at the Bank, the machinery of monetary policy was changing. Data, analysis and models suddenly became more central to judgements on inflation and the appropriate monetary stance. Accompanying this, economics and economists began playing a more central role in formulating the Bank’s judgements.
Chart 6 Wage growth on the rise Wage growth is rising and reached the highest level seen in over a decade last year, turning out higher than we had expected. This can be ascribed in large part to a tight labour market and improved profitability in some business sectors. The social partners expect wage growth to rise further this year, and expectations have increased in recent months. Wage growth is projected to be around 5 percent this year,  2/3  BIS - Central bankers' speeches  which is higher than we projected in December. While wage growth did not keep pace with price growth last year, we expect wage inflation to be slightly higher than price inflation this year. Higher wage growth means higher business costs, which will likely also contribute to sustaining inflation. Figure 7. Further rate rise most likely in May It is our responsibility to ensure that inflation falls to 2 percent. At the same time, we will avoid raising the policy rate beyond that needed to curb inflation. There is considerable uncertainty about future economic developments, but we will most likely raise the policy rate again in May, followed by a further rise to around 3.5 percent in summer. This could mean an increase in the residential mortgage rate to between 4½ and 5 percent. Chart 8 Prospects for lower inflation and somewhat higher unemployment In our current projections, inflation falls back towards 2 percent over the next years.

With the lifting of pandemic-related restrictions in China and lower energy prices, activity among trading partners will likely be higher than we had anticipated earlier. High inflation has prompted central banks in many countries to raise policy rates to the highest levels since the 2008 financial crisis. Over the past year, foreign interest rates have risen more than Norwegian rates. Combined with the turbulence in financial markets, this has probably contributed to the depreciation of the krone. The krone is now considerably weaker than we envisaged in December. A weaker krone means an increase in prices for imported goods and services in krone terms. This will contribute to sustaining inflation in Norway. Figure 5. High employment Activity in the Norwegian economy has been higher than expected. Employment is high and unemployment is low. At the same time, we have seen an increase in labour force participation, which is a welcome development. Growth in the economy will likely be weaker ahead, but the slowdown appears to be less pronounced than projected in December. The enterprises in our regional network report slightly better prospects than before Christmas, but there are wide variations across industries. In the secondary housing market, prices have risen somewhat in recent months, but the number of homes for sale is quite high. New home sales are very low. We expect a modest decline in house prices ahead as a result of higher interest rates.
And according to the Bank’s baseline forecast, the outlook is good: continued strong GDP growth and full employment; a current account surplus throughout the forecast horizon; the prospect that Icelanders will soon own more assets abroad than foreign nationals own in Iceland; and inflation at target for the entire period. One can ask, in view of this, why some observers are so dissatisfied with monetary policy. I will discuss this in more detail later on. But there are significant risks, and we must be on the watch for them. There is an obvious risk of economic overheating. The labour market could spiral out of control. Economic policy mistakes could take place – for instance, if fiscal policy begins to pull too strongly in a different direction from monetary policy. We have seen the repercussions of this before. I will now turn to the main topics of my speech today: the level of interest rates in their long-term context, the foreign exchange market, and possible changes to the monetary policy framework. Level of interest rates During the run-up to the recent Parliamentary elections, there was considerable discussion of the level of interest rates in Iceland. If we are to come to a sensible conclusion on whether the nominal interest rate set by monetary policy is appropriate or not in terms of inflation, inflation expectations, the business cycle, a plausible estimate of the equilibrium real rate, and foreign interest rates, it is important that the discussion be based on facts.

The new international division of labour thus affects every stage of the production process; it influences the localisation of added value and raises the question of the financing of the external imbalances of economies that focus on the design and marketing of products rather than their manufacture. The second session will deal with the impact of trends in productivity and competitiveness on international capital allocation and global imbalances. These trends may have contributed to the increase in global imbalances reflected in current account balances, and highlight several paradoxes. The first paradox is that of the US economy, which combines the structural surge in its productivity with a possible loss in competitiveness illustrated by the increase in its external deficit. This paradox is perhaps only apparent if we consider that the improvement in the US’ relative productivity performance is mainly in the non-tradable sector and as compared to the industrialised rather than the emerging economies. In addition, while this pick-up in productivity does boost the profitability of investments, logically, it goes hand in hand with an excess of investment over national savings that calls for increasing foreign capital inflows. However, the predominant nature of capital inflows to the United States changed at the start of the 2000s, switching from mainly purchases of equities and foreign direct investment by the private sector to purchases of government securities by central banks, which are not motivated by the search for increased profitability. This leads us to the second paradox, a twin to the first, i.e.
I shall structure my address around four simple questions. What were the problems of the Spanish banking system? What was done to try to resolve them? What results were achieved? And, finally, what is left to be done and what challenges lie ahead? 2. The problems  Looking back, the crisis can be seen to have had an enormous impact – one not yet fully absorbed – on levels of employment and well-being. Likewise apparent are the significance of the banking sector in the development of the crisis and the efforts taxpayers have had to make to restore financial stability. And in this light, it is difficult to avoid having a very negative perception of the functioning of the banking system in the run-up to the crisis. That said, the Spanish banking industry has, traditionally, been a rather profitable one, capable of successfully pursuing a very effective commercial banking model, of developing valuable franchises built on a highly stable customer base and, in the case of the biggest banks, of significantly expanding their business beyond our borders. Moreover, thanks to the business model then prevailing and to the supervisory action, the industry remained immune to destabilising practices common to other banking systems, such as investment in complex products that were short on liquidity and inadequately valued, which triggered the global financial crisis in 2007. Undoubtedly, however, Spanish banks had particular shortcomings which, along with the turbulence on European debt markets, account for a relevant part of the crisis in the sector from 2010.

Given the limited scope for cutting deposit rates, low interest rates tend to depress net interest income. Thus, it will become increasingly difficult to maintain the cross-product subsidy whereby banks often exploit the loan-deposit spread to cover the cost of providing services to customers. Indeed it seems reasonable to expect that the zero fees policy will gradually fade into the background and that competition for deposits will shift in part to the business of providing transactional services. In any event, Spanish banks must adapt their business strategies to the new environment and must, in particular, take measures to continue to improve their operational efficiency. It is true to say that operational efficiency is, in general, already high in the Spanish industry in comparison with the rest of Europe, as Spanish banks on average have lower cost indicators than their euro area peers, but there are considerable differences from one institution to another and there is, therefore, room for improvement. It seems particularly appropriate to reflect on the need to adjust the commercial model of Spanish banks which is characterised, despite the industry consolidation, by a number of offices per capita which is much higher than the European average. In my view, both 6  BIS central bankers’ speeches  technological progress, which allows banks to increasingly interact with customers beyond physical points of sale, and the need to restore bank profitability on a sustainable basis, are sufficient arguments to support this reflection.
The feedback loop that exists would enable the institutions to keep the money laundering and terrorist financing risks assessment current and relevant. Finally, this in turn would be a source of valuable information to the authorities in conducting the national level money laundering and terrorist financing risks assessment. Comprehensive understanding of money laundering and terrorist financing risks should be translated into a comprehensive risk controls and mitigation. This is key in applying a risk-  8  BIS central bankers’ speeches  based approach in the implementation of preventive measures, where more focus should be channelled to high risk areas identified. The controls and measures should be applied across the overall compliance program, including oversight by management, customer due diligence, staff trainings and suspicious transactions reporting. Equally important, the risk controls and mitigation developed should be executable and applied religiously. To complement this, the policies and procedures should be tested and monitored, by independent parties to ensure its effectiveness and relevancy. Let me conclude my presentation today. The NRA is an important tool to facilitate our understanding of money laundering and terrorist financing risks facing the country. Understanding of risks is important as it set the foundation upon which our AML/CFT regime is implemented. For an AML/CFT regime to be effective, it has to target the resources and AML/CFT initiatives towards areas that pose the greatest risks. At the end of the day, the test is on how good we are in achieving the ultimate objective of an effective AML/CFT regime.

Conclusion Interest in the issues I have touched on this morning must not ebb when peacetime is eventually regained. Parochially, there has been massively more public interest in the Bank of England’s financial stability role during the period of turmoil than over the preceding years. But what we all do in peacetime will affect how the next “war” plays out. We must not forget that. Central banks can play a role because they can bring together and synthesise analytical and practical expertise in macroeconomic conditions, financial markets and the financial infrastructure. That synthesis is rather special, and should be at the service of the system as a whole. 4  BIS Review 77/2008
In the past, as we have seen here in Asia, serious reversals have triggered debt defaults, banking distress, and currency crises. Although capital flows are nothing new for Asia, what is new and makes the issue more demanding this time is the global context that the flows are taking place, which has important implications for the effectiveness of the policy response. First, compared to previous episodes, capital inflows this time are not country-specific that relate to the financing of payment deficits. Instead, capital inflows this time are a global phenomenon propelled by near zero policy rates and liquidity expansion in the advanced economies, as well as the return of risk appetite, and the recognition that risk-adjusted investment returns in the advanced economies are likely to be very low for an extended period. This means we are living in a world where the forces that shape the resurgence of capital inflows lie outside the control of policy by emerging markets, making it a totally different challenge. Second, given that financial markets have become more integrated and more interconnected than ever before, the risk to economic and financial stability associated with capital inflows this time is also much greater. This is because large capital inflows relative to the absorptive capacity of any economy are more likely to be sustained for a longer period. As a result, the effects of abrupt reversals of capital inflows are likely to be more severe as well.

Such reversals, abrupt or not, are bound to happen once better growth prospects in the advanced economies are confirmed. The upshot is that we are living in a world where disruptive tail events can be more of a frequent occurrence than was the case in the past. And third, while the forces underlying the current cycle of capital flows are global, policy response in emerging economies remains domestic-centric. This, I think, is an important point to note in the current capital flows episode. Also, because financial markets are more integrated, policy response in one country can have significant unintended consequences on other economies. In other words, we are living in a world where events and policies in a country can result in large spillover effects on other economies. BIS Review 141/2010  1  So, this is the new economic and financial context in which the flows are taking place and the policy responses are being shaped. Managing this will be a challenge, and effective policy response will require an integrated approach that combines flexible monetary and exchange regime, fiscal policy, capital account liberalization, and the use of macroprudential measures, in a coherent policy framework. Moreover, the policy response will need to be supported by structural reforms and policies to enhance the depth, the resilience, and the strength of the domestic financial system, as well as policies to promote a greater degree of product and labour market flexibility.
Today almost every country is operating an RTGS system. There is now a widespread consensus within the private sector and the central banking community about the kind of operational requirements and financial risk controls that are necessary to make a payment system safe. A main contributor in this area has been the Committee on Payment and Settlement Systems (CPSS) at the Bank for International Settlements (BIS). As a standard-setting body the CPSS has, for instance, drafted the Core Principles for Systemically Important Payments Systems. The Core Principles are a testimony of the consensus about standards for safety and efficiency in payment systems. The CPSS has also played a leading role in raising the awareness of the risks involved in the settlement of foreign exchange transactions. It has also followed and to some extent promoted the CLS project since its beginning. The safety of the clearing and settlement infrastructure has been a long-standing concern of the overseers. Together with the financial industry they might even have enjoyed some pride while looking at what was achieved in terms of efficiency as well as safety and soundness of operations by the industry. But clearly, since September 11, 2001, a new awareness of vulnerability has grown on us all. Those tragic events have made us rethink our approach vis-à-vis safety and operational risk. I think we all suddenly realized we had to reassess the vulnerability of our institutions and systems and, where necessary, improve their resilience.

What applies to single financial institutions obviously also applies to institutions of financial market infrastructure, to central banks and to institutions of supervision and oversight in general. The same insights apply to everyone: Be aware of the new dimensions of systemic risk within globalized financial markets and refrain from early satisfaction with what you appear to have achieved. At this point, I would like to stress that the overall resilience of the financial sector also depends on the financial strength of each institution. In retrospect it might be said it was a benign coincidence that the September 11, 2001 attacks happened in a period of comparatively favorable economic conditions in the financial industry. Under less favorable circumstances the capacity to absorb shocks could have been considerably smaller. This is another reason why the rapid implementation of the new Basel Accord on capital adequacy is so very important for the financial system as a whole. In addition to this it is obvious that further and new tasks arise for regulatory agencies and central banks at the national as well as the international level. Addressing the issue of disaster recovery has to become part of the routine supervisory process. Supervisory guidelines and examination procedures are being adjusted in this light and they are helpful tools in increasing resilience. Also, when overseeing payment systems resilience and business continuity will have to be scrutinized anew.
While we are now at the point where we anticipate – subject to incoming data confirming our medium-term inflation outlook – that we will end net asset purchases at the end of the year, significant monetary stimulus will still be needed to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. Even after we end our net asset purchases, monetary stimulus will continue to be provided by the guidance we have given namely that we expect to keep interest rates at their present levels at least through the summer of 2019 and to maintain the stock of assets on our balance sheet by reinvesting maturing bonds purchased under the asset purchase programme for an extended period of time 1/3  BIS central bankers' speeches  after the end of our net asset purchases. But the overall favourable outlook and our still accommodative stance should not invite complacency. Although on the whole the risks surrounding the euro area growth outlook can still be assessed as broadly balanced, risks relating to protectionism, vulnerabilities in emerging markets and financial market volatility remain/are prominent. We are seeing a growing willingness to question multilateralism, which has underpinned global growth since the end of the Second World War. The protectionist trade measures implemented may have had very limited effects thus far, but the escalation of trade tensions is undermining confidence. Financial stability Allow me also to say a few words about euro area financial stability.

At the same time, we need to establish a common backstop to the Single Resolution Fund and lay the groundwork for the creation of an effective European Deposit Insurance Scheme. Significant steps in these areas are a precondition for a truly integrated euro area banking system and single money. The transmission of the ECB’s monetary policy remains at risk of being hampered in crisis situations as long as levels of depositor confidence differ across the euro area. The second thing we need to do is build a true single market in capital. Diversified capital markets play an important role in sharing risks and smoothing private consumption over time. For this reason, the ECB has been a strong supporter of the European Commission’s plan for a capital markets union. To be robust, the capital markets union needs effective regulation and supervision, for example in relation to investment firms and clearing. Not least given the United Kingdom’s imminent departure from the EU, we need to make concrete progress on this agenda and complement it with an ambitious, longer-term vision. Conclusions I would like to end by mentioning that recent Eurobarometer data show that support for the euro stands at a record high of 77% among euro area citizens and a large majority believe that their country’s membership of the EU is a good thing. Support for the European project is particularly strong in Ireland, where with 88% of citizens the single currency enjoys the highest level of support in the EU. Europe has to repay this trust.