In a number of countries in Asia, the global financial crisis has also sharpened the focus on risks in financial institutions which are more systemically important. This includes having the regulatory reach that extends to institutions outside the formally regulated system. The implementation of global financial reforms has however, also substantially increased the regulatory complexity associated with the proliferation of binding “one-size-fits-all” prescriptions. While these rules mainly aim to address the fundamental weaknesses of the global financial system exposed during the crisis, it is important not to lose sight of other critical elements of sound regulation and supervision. The crisis has underscored the need for judgment to have a greater role in regulation and supervision. The implementation of global reforms is also proceeding at a time of tighter global financial conditions and weaker global growth. While the work of the Basel Committee, now more than two years old, suggests that its effects on economic growth will be modest, the highly dynamic global financial conditions needs to be taken into account in the implementation of the new standards. BIS central bankers’ speeches  3  In addition, in a more interconnected world, building Asia’s resilience to future shocks has also included significant progress in the arrangements to respond to potential threats of a crisis on a regional scale. These arrangements are currently being strengthened in Asia, through regional platforms for cooperation and more developed home-host supervisory arrangements that reflect the wider regional footprint of financial institutions in Asia.

We believe that expectations play an important role when prices and wages are set. Expectations concerning future inflation and economic stability have considerable impact, not least in the foreign exchange market. Inflation expectations also influence wage demands and have an effect when companies adjust their prices. It may be difficult to form an opinion about how expectations are generated. Confidence in the inflation target may provide an anchor. Past inflation rates may also influence what we think inflation will be in the future. There is thus an interaction between inflation expectations and inflation. If there is confidence in monetary policy, expected inflation will be equal to or close to the inflation target. This contributes to stabilising inflation around the target. The expectations channel thus amplifies the effects of monetary policy. We therefore place considerable emphasis on ensuring that households, companies, the social partners and financial market participants are confident that inflation will remain low and stable. To the question of how high prices are expected to rise, companies, the social partners and others answer that they expect a rise of 2½ per cent over time. Financial market participants also expect future inflation to be 2½ per cent. This is reflected in developments in long-term bond yields. This indicates that monetary policy has underpinned confidence that future inflation will be 2½ per cent. Consumer price developments There were wide fluctuations in the Norwegian economy in the 1970s and 1980s. Economic developments were marked by high and variable inflation.