However, in a context where inflation has turned out to be higher than expected; where inflationary expectations remain above target; where the peso is weaker than normal; where the global inflationary problem has become more complex and there are doubts as to how policies to address it will affect the global economy and financial markets, we must acknowledge that the risk of experiencing a more persistent inflationary phenomenon is our primary concern. Monetary policy makers will remain attentive to these developments and, as I mentioned a few moments ago, future movements of the MPR will be contingent on them. Urgently resolving the inflationary problem does not imply that we should set aside our medium-term challenges. More than two years into the pandemic and almost three since the social unrest of October 2019, our economy has suffered a string of events that have put the effectiveness of our economic policy framework and the authorities' ability to react to the test. In addition to the inflationary effects, some of the measures adopted to deal with the effects of the pandemic generated significant costs in the local financial market. Withdrawals of pension funds reduced the size of long-term savings and possibly also the economy's capacity to react to external shocks, especially under conditions of high uncertainty. Therefore, the strengthening of financial markets should be an important item on the economic agenda.

The Governor also spoke about the trade-off as part of his speech the “Grand Unifying Theory (and practice) of Macroprudential Policy” available at https://www.bankofengland.co.uk/-/media/boe/files/speech/2020/the-grand-unifyingtheory-and-practice-of-macroprudential-policy-speech-by-markcarney.pdf?la=en&hash=53A55C800C6B04573DC04FD2F9579079A3503FED 7 See https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/consultationpaper/2020/cp220.pdf?la=en&hash=133449CBB3D0FDD2B03AC6242C99C3F36A150258 8 The second core principle states that ‘[t]he supervisor possesses operational independence, transparent processes, sound governance, budgetary processes that do not undermine autonomy and adequate resources, and is accountable for the discharge of its duties and use of its resources’ (https://www.bis.org/basel_framework/chapter/BCP/01.htm?inforce=20190101). 6  I would like to thank Matthew Willison, Hugh Burns, Nicolo Fraccaroli and David Swallow for their assistance in preparing these remarks 7  Regulatory independence and financial stability in practice  Does the evidence support the theory that an independent regulatory body with a clear mandate and strong accountability produces better outcomes? At the Bank, Fraccaroli, Sowerbutts and Whitworth (2019) have been researching whether the institutional structure for prudential regulation affects financial stability in practice. They have done this by analysing whether there is a statistically significant association between the independence of the prudential regulator and/or supervisor and financial stability outcomes. The authors have constructed for different countries and over time an index of regulatory-supervisory independence. The index combines three aspects of independence: institutional; regulatory; and budgetary. The definitions of these aspects can be found in Table 2. Table 2: Definitions of aspects of independence captured in the Regulatory-Supervisory Independence index Aspect of independence  Definition  Institutional  This captures the involvement of political bodies in the appointment and dismissal of the head of the regulatory agency, as well as length of their term.