samchain/econo-pairs-v1 huggingface dataset:
The strong exchange rate gave us somewhat more time than we would otherwise have had to bring about this domestic slowdown – it meant that monetary policy did not need to be tightened as aggressively as would have been necessary otherwise. But we could not avoid tightening policy altogether, even though we realised that this would be likely to increase the pressures on the internationally-exposed sectors, because in anything other than the short term that would have put the whole economy – including the internationally-exposed sectors we were trying to shelter – at risk of accelerating inflation. I would remind you that right up until the summer of last year we were seeing signs of increasing pressures in the labour market, even in the manufacturing sector – reflected in increasing skills shortages and recruitment difficulties, in the employment/unemployment data, and in gradually increasing pay settlements. The uncomfortable reality, as I’ve said very often before, is that monetary policy can only target the economy as a whole – it can’t seek to protect individual firms, or sectors, or regions, however much we might wish it otherwise. That – as I’ve discovered – is not exactly a popular idea, but there’s no question that that is the reality of it. Over the past year the world – and I mean the world – has changed very substantially.

As a result, there is a lack of integration of GRC across business areas or functions. 2. New regulations and pressure for integrated risk management  2.1 During the past few years, regulatory and compliance requirements of the financial institutions have strengthened globally. Since the first updating of the Basel Capital Accord in the late 1990s, the Sarbanes-Oxley Act in 2002, the launch of new regulations seems to  2  BIS Review 15/2008  have become more frequent. With these new requirements, financial institutions are facing an amplified focus on risk management with risk based performance measures and capital allocation. Rating agencies too have expanded their analysis of Integrated Risk Management practices when determining credit ratings. 2.2 The Financial Services Authority (FSA) in the UK, which has come under much criticism in recent times due to the failure of Northern Rock, has published its risk outlook report in 2008, which has identified 5 priority risks. Although some of these may not be directly relevant or applicable to Sri Lanka’s financial institutions, they are common risks that need to be flagged by the Boards of Directors of financial institutions. The priority risks set out by the FSA are: •  Existing business model of some financial institutions are under strain as a result of adverse market conditions. Given the nature of financial business, i.e.
24  And, perhaps in keeping with changes in workers’ risk appetite, labour market indicators like the unemployment rate have signalled tightness for most of my time on the MPC without translating into pay pressure. 25  The MPC’s November Inflation Report forecast, which is the best collective judgement of the Committee, is that inflation will peak around 3% this year. In the later part of the forecast period, as the impact of externally generated inflation pressure wanes, domestic inflation pressures, particularly pay, rise so that inflation is slightly above the target at the 3 year forecast horizon. The forecast is based on the increase in Bank rate to 0.5% which the Committee agreed at its last meeting and on the market path for interest rates, which implies Bank rate rising to 1% over the next three years. At the November meeting I voted against increasing Bank rate. I did so not because I had a markedly different view to the majority of the right trade-off between output/inflation over the forecast period – or to put it another way, on the limits to tolerance of above-target inflation. In this respect, I share the overall framework of the Committee. Our framework, however, depends crucially on our estimation of the Phillips curve – both the slope and level.

26  As is set out in Carney (2017a): The actual trade-off struck will be influenced by individual MPC members’ views of both the nature of the shocks hitting the economy and the transmission mechanism of monetary policy – in other words, why the economy is behaving as it is, and how interest rates affect output and inflation. Put another way, if members have, for example, different views of kappa – the slope of the Phillips curve – their lambdas will appear to be different. Indeed, it is quite possible for the Phillips curve slope to vary over time, and some have argued that it may have flattened in recent years. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  before tightening policy until there is clear evidence that pay growth is responding to the level of unemployment in line with our forecast. Finally, I have managed to get almost to the end of this speech without mentioning Brexit. Almost, but not quite. While Brexit is a further source of uncertainty, my policy decision does not anticipate any particular Brexit outcome. The questions I have described in relation to the Phillips curve framework are independent of Brexit. They arise in other advanced economies. But Brexit is relevant to monetary policy and to the MPC. Expectations of Brexit - the full and diverse range from the most optimistic to the most pessimistic – are in the UK economy now.
In Europe, the economy is still marked by stagnation, and projections for growth in 2003 have been revised downwards a number of times. A moderate upturn is expected in 2004, but activity will remain at a low level. Even though Norges Bank is forward-looking in its conduct of monetary policy, thorough knowledge of the current state of the economy is extremely important. An up-to-date and correct picture of the current situation is necessary to make accurate projections for the period ahead. In autumn 2002, Norges Bank established a regional network as a tool to gauge the level of activity in the Norwegian economy. 1  Based on an assumption concerning forward rates and a gradual depreciation of the exchange rate. BIS Review 43/2003  3  Official statistics and evaluations of developments in financial markets will continue to be the main basis for our assessments, but due to the time lag and revisions of such statistics, supplementary information is useful. The regional network provides up-to-date information on the state of the Norwegian economy. Regular communication with local contacts in Norway’s business and community life provides us with information that supplements available official statistics. It also provides us with supplementary information on areas not covered by official statistical sources, and we learn which issues are of particular concern to enterprises. The network consists of companies, organisations and municipalities throughout Norway.

In mid-September, Norges Bank submitted a report to the Ministry of Finance. This report carefully examines the reasons for the low level of inflation and the measures that have been implemented to bring inflation back up to target. There are still prospects of low inflation for some time ahead. Developments in other countries indicate that prices for imported goods and services, measured in the producer countries’ currencies, will not rise appreciably. It also takes time for the effects of last year’s appreciation of the krone to dissipate. However, this year’s krone depreciation will gradually have an affect on inflation and thus contribute to higher inflation. The analysis in the June Inflation Report showed that a reduction in the sight deposit rate towards 3 per cent, combined with some depreciation of the krone, could bring inflation up towards the target at 11 the two-year horizon . The prospect of more moderate wage growth ahead could provide a basis for an even lower interest rate and a weaker krone without the projections for inflation exceeding 2.5 per cent in the period. With reduced pressures in the economy and an inflation outlook that is below target at the two-year horizon, Norges Bank has reduced the key rate a number of times in the last year. This summer the interest rate has been reduced in larger steps than has been customary. Interest rate reductions have been an important element in preventing inflation expectations from taking hold at too low a level.
And to look at the judgments and uncertainties we now face. Needless to say, as always, the “data are difficult to read”. When I arrived on the MPC, we were seeing signs of a strong recovery – stronger than anyone had forecast – that had started in the spring of 2013. Over the middle 2 quarters of that year, GDP had increased at an annualised rate of over 3%. The key drivers of the recovery seemed to be renewed consumer and business confidence due in no small part to the de-escalation of the Euro crisis and an easing in credit conditions. These in turn released pent up demand in the economy. The evidence suggested that this strong growth would continue into 2014. Forward looking economic indicators were very strong. The business surveys were pointing to continued growth at that pace. The squeeze in living standards from higher energy and food prices had started to ease. But, growth seemed to be almost entirely driven by consumer spending and the emerging recovery in the housing market. That strength in consumer spending did not come from growth in real incomes but from a large, two percentage point, drop in the savings rate. Business investment still appeared to be dragging on activity. So there were real question marks about whether this strong growth could be sustained. The MPC took an optimistic view. We forecast business investment would increase as the surveys suggested and play a bigger role in supporting growth.

Recognising the potency of marketing, I set up in 2010 within the HKMA a new team dedicated to reaching out to promote Hong Kong as the premier international financial centre (IFC) in Asia. One of the priority areas that our team has sought to promote, which is highly relevant to our treasury practitioners, is clearly the use of Hong Kong as the corporate treasury management hub for multinational companies as well as Mainland corporates with increasingly larger business footprint offshore. Our team has in the past year alone reached out to nearly 300 companies. 3. Many corporates that we have approached recognise the attractiveness of Hong Kong as an IFC. Hong Kong is a major banking centre with mature and sophisticated capital markets. Our financial system is resilient and is underpinned by a robust regulatory regime. We have first class transport and communications infrastructure. There is a large cluster of finance and legal professionals and talents etc. Yes, we do have a long list of advantages that we can deploy to lobby corporates to come to Hong Kong to set up corporate treasury centres (CTCs) to manage their cash, FX, credit, hedging, interest rates transactions. However, the HKMA outreaching team soon realised that they had run into a major problem. The problem had to do with the tax asymmetry that treated CTCs’ overseas interest expenses and income differently.
Some institutions have an explicit policy of raising half of their borrowing requirement abroad in their own name, while others manage their borrowing abroad via their parent bank, which issues securities in the banking group’s name so as to ensure the lowest possible borrowing costs. Neither is it unusual for banks that own mortgage institutions to buy bonds issued by the mortgage institutions of competing banking groups. The reason for doing so is that banks are not allowed to use bonds issued by their own institutions as collateral when borrowing from the Riksbank, while they are allowed to pledge bonds issued by institutions outside their own banking group. As a result, mortgage bonds are largely owned by the banks, which contributes to reducing liquidity in the mortgage market. There are several factors that affect the ability of companies to borrow in the market. These include, of course, the possibility to easily assess the borrowers’ credit ratings and the quality of their assets. This is made easier if the borrower has an extensive contact network so that institutional investors are familiar with the borrower and its activities. Building up and maintaining this type of contact network and credibility requires time and considerable resources. The Swedish mortgage institutions have long established such contact networks, primarily in the Swedish securities market, where the liquidity for Swedish mortgage bonds is greatest.

Even the Basel II regulations, which will come into force in 2007, provide scope for regarding mortgage bonds covered by legislation on secured bonds as more creditworthy than mortgage bonds not covered by such legislation. However, the Swedish market for mortgage bonds is already a large, liquid market that has functioned well since its deregulation at the end of the 1980s. It is the third-largest mortgage bond market in Europe, after the German and Danish markets. After the Swedish government, Swedish mortgage institutions are the largest issuers in both the money and bond markets in Sweden. As much as around 40 per cent of all lending to the non-bank public is mediated via mortgage institutions, which largely finance their activities by issuing bonds and certificates in the securities markets. The market is dominated by five mortgage institutions, which together account for around 99 per cent of all borrowing. The four largest mortgage institutions are subsidiaries of the four largest Swedish banks, while the fifth, SBAB, is state-owned. The mortgage institutions’ annual reports show that as much as around 30 per cent of securities borrowing is carried out abroad, which suggests that there was already considerable interest among foreign players before the legislation on secured bonds was proposed. However, there are considerable differences between the institutions.
Our fiscal deficit, now between 3 and 4 percent of GDP, is in the zone of unsustainability. Our external imbalance - the current account deficit - is now between 6 and 7 percent of GDP, a level without precedent in U.S. economic experience. Each of these imbalances magnifies the risk in the other. One might be less troubled by a fiscal imbalance of this size if it was not accompanied by a substantial increase in our reliance on the savings of the rest of the world. The external imbalance might be less troubling if the government was in balance and those substantial capital inflows were going to finance private investment. Together, however, these imbalances raise the potential for higher risk premia on U.S. financial assets and more uncertainty about future returns on claims on the United States. This in turn could reduce expected future investment, productivity growth and U.S. growth potential. This could reduce the willingness of the world’s savers to put their capital to work in the United States. And this could mean lower growth outcomes and slower growth in future incomes. These are risks, not certainties. And there are a number of reasons why the probability of a destabilizing adjustment to these imbalances is likely to be low. These explanations are worth some attention. There is a reasonable case to make that the U.S. fiscal deficit, although a problem, is a problem of manageable dimensions for the medium term, provided we deliver modest changes to the paths of expenditures and revenues.

Ladies and Gentlemen, The final part of my talk concerns the developmental role of central banks. When it comes to financial stability, this is an often overlooked and underappreciated role. Looking back at history however, one finds a number of financial crises were associated with flawed or ill-timed financial liberalization. Thus the path set forward for the financial sector by central banks may lead to destruction as well as prosperity. The Thai financial crisis in 1997 was a case in point. Although it was an inconsistent macroeconomic policy mix that precipitated the crisis, it was the decision back in the 1970s to allow structurally risky finance companies to operate alongside with commercial banks and the creation of the Bangkok International Banking Facilities in the hope to transform Bangkok into Asia fourth financial center after Tokyo, Hong Kong and Singapore that made the financial sector vulnerable with overloaded risks. Thus, when we started anew with our Financial Sector Master Plan to guide future developments of the Thai financial sector in 2004, the two structural weaknesses were the first two to be eliminated. Fast forward to today, all eyes are now on ASEAN financial integration under the AEC Blueprint to create a semi-integrated financial market by 2020. The ASEAN financial integration framework comprises four areas, namely financial services, payments and settlements systems, capital account, and capital markets. It is noted that the target date is beyond 2015 for the AEC.
In the UK, wearing our “resolution authority” hat, the Bank hopes to be able to work closely with individual banks and the FSA in helping to specify and guide what is needed in practice. My colleague Andrew Bailey will be discussing in more detail tomorrow one of the issues raised by past cases. The enterprise also entails thinking beyond the resolution of modest-sized domestic banks. Both the US and UK authorities are exploring how to extend resolution regimes to bank holding companies and to other types of firm that could prove systemically significant in some circumstances. As present, no one thinks that Large and Complex Financial Institutions could be resolved at all smoothly, as the rescues of the past twelve months show. Cross-border resolutions and the international “living wills” exercise There is, therefore, a substantial international dimension to this work, which is being facilitated by the Financial Stability Board. Over the next few months, the top 25 or so banks  5  6  Communication from the European Commission, An EU Framework for Cross-Border Crisis Management in the Banking Sector, 20 October 2009. http://ec.europa.eu/internal_market/bank/crisis_management/index_en.htm#overview  BIS Review 144/2009  and dealers in the world will be working with the authorities to produce recovery and resolution plans. The effort will involve not only line supervisors but also resolution authorities and central banks. Firms are expected to produce recovery plans. For obvious reasons, resolution plans need to be produced by the authorities, while still drawing on inputs from the firms.

3  FSA DP09/4: Turner Review Conference Discussion Paper, “A regulatory response to the global banking crisis: systemically important banks and assessing the cumulative impact”. 4  BIS Review 144/2009  Second and beyond liquidity planning, recovery can involve derisking. This might mean laying off risk, shedding positions or even selling businesses. Once in distress, banks absolutely must be prepared to shrink their franchise in order to sustain themselves. That may entail having businesses set up within groups in a way that would facilitate sale, if necessary. Sometimes what a group regards as its core franchise will not map exactly into what the authorities think of as the essential economic services it provides. That is obviously for discussion between firms and their regulators, who need to be ready to exercise powers to force risk-reduction and recapitalisation where necessary to preserve the soundness of the enterprise and the stability of the system. “Derisking” is all about the capital resources of banks in the face of idiosyncratic or widespread stress. There is, therefore, a read across from the “Living Wills” exercise to the question of how much capital banks should hold. Almost no amount of capital is enough if things are bad enough. Which is why contingent capital might potentially be an important element in banks’ recovery plans, as the Governor set out recently in Edinburgh. 4 This would not be the kind of hybrid capital that mushroomed in the decade or so leading up to the crisis.
The downward slope of the current yield curve signifies a tight monetary policy stance (Chart 6). Additionally, loan interest rates have recorded a notable increase since October (Chart 7). As a consequence, loan growth rate declined to more reasonable levels towards the yearend (Chart 3). 4  BIS central bankers’ speeches  Chart 6. Chart 7. Yield Curve*  Consumer and TL Business Loan Rates*(Percent)  Calculated by the return on bonds quoted on the ISE  *Flow data. **4-week moving average. Bonds and Bills Market using the Extended Nelson-Siegel (ENS) method. Source: CBRT. Source: ISE, CBRT. Overall, the last quarter of 2011 was marked by ongoing tightening in monetary and financial conditions and a pronounced deceleration in loans. 2. Macroeconomic Developments and Main Assumptions  Having climbed to 10.45 percent at end-2011, inflation was significantly above the target. As you all know, the Article 42 of the Central Bank Law stipulates that in the case of a significant breach of the inflation target, we are required to report to the Government and announce to the public the reasons behind the breach of the target and the necessary measures to be taken. I would like to announce that we will publish the Open Letter that will be sent to the Government today on our web-site at 12 a.m. Now, I will touch upon the macroeconomic outlook and our assumptions which constitute the basis for our forecasts.

Inflation and Monetary Policy Outlook  Now, I would like to present our inflation and output gap forecasts based on the outlook I have described so far. When forming our forecasts, we assumed that the tight monetary policy stance will be sustained for a while; and consequently, annualized loan growth rate will hover around 15 percent and the Turkish lira will display a mild appreciation trend. Accordingly, inflation is expected to be, with 70 percent probability, between 5.1 and 7.9 percent with a mid-point of 6.5 percent at the end of 2012, and between 3.3 and 6.9 percent with a mid-point of 5.1 percent at the end of 2013. We expect inflation to stabilize around 5 percent in the medium term (Chart 17). Chart 17. Inflation and Output Gap Forecasts  * Shaded region indicates the 70 percent confidence interval for the forecast. Overall, although demand and cost conditions have not changed notably since the publication of the October Report, we revised our inflation forecasts for end-2012 upwards due to higher initial point (the initial point referring to the latest inflation data before the forecast period) resulting from higher-than-expected inflation during the past three months. As elaborated on in the Report as well, cumulative increases in the exchange rate and commodity prices coupled with soaring unprocessed food prices and the developments in administered prices pushed inflation to high levels in 2011. We estimate that inflation will remain flat in the first quarter and exhibit a gradual downtrend starting from the second quarter (Chart 17).