A number of prerequisites for the new framework have already been fulfilled by the Central Bank and the government during the past 19  few years with the view of moving towards flexible inflation targeting in the medium-term. At present, as an interim arrangement, the Central Bank conducts its monetary policy within an enhanced framework with features of both monetary aggregate targeting and flexible inflation targeting frameworks. Under this enhanced monetary policy framework, the Central Bank focuses on stabilising inflation in mid-single digits over the medium-term, while supporting the growth objectives and flexibility in exchange rate management. Although the Central Bank does not announce any monetary targets explicitly, broad money aggregates remain a key indicative intermediate variable to guide the conduct of monetary policy. Moreover, instead of reserve money, the Central Bank currently uses the average weighted call money rate (AWCMR) as its operating target and increasingly relies on its market based policy instruments, namely policy interest rates and OMO. As accurate forecasts of inflation and other key variables are essential for the success of flexible inflation targeting, macroeconomic projection capabilities of the Central Bank are currently being strengthened. As an important step toward building technical infrastructure for the successful implementation of flexible inflation targeting, a Forecasting and Policy Analysis System (FPAS) using short-term forecasting tools and medium-term dynamic stochastic general equilibrium (DSGE) techniques, has been developed by the Central Bank with the assistance of the International Monetary Fund (IMF). This system is currently being integrated into the monetary policy formulation process of the Central Bank.

Because those mechanics are governed by national accounting standards, global markets face significant hurdles in exercising discipline across jurisdictions. Business practices differ. Legal systems may be unfamiliar. Deciphering balance sheets prepared under national accounting systems can be an extremely taxing undertaking. Considering those burdens alone, it is easy to agree that market discipline would be more effective under more harmonious - if not completely harmonised - accounting rules. But the task is formidable: a reporter from the Wall Street Journal questioned recently how accounting rules could be harmonised  BIS Review 29/2004  3  when, for example, Europeans and Americans do not even agree on which set of measures should be used in the kitchen. In our efforts to strengthen financial stability, central banks and supervisors have a legitimate interest in the quality of accounting standards and their effective implementation. We believe that in order to contribute to strengthening the banking system, accounting standards should support - or at least be consistent with - sound risk management and control practices in banks. In addition, they should facilitate market discipline by promoting transparent financial reporting of banks’ financial position and performance, risk exposures and risk management activities. Finally, accounting standards should facilitate the effective supervision of banks. This is why, as you know, the Committee has attached great importance to taking an active role in the international debates on accounting and promoting the supervisory perspective on key accounting issues, and we very much support the work towards convergence in international accounting.