distort the outcome of surveillance. when low interest rates remain in place for a long time, the market tends to blindly expect that those bad loan assets that should be written off will revert to normal status. in turn, forbearance toward the redemption of these loans comes to prevail, in what is known as a game of “ extend and pretend ”. if this “ evergreening practice ” in the accounting treatment of delinquent loans as normal loans becomes common, there can be little confidence in the outcome of surveillance. moreover, the symbiotic relationship between credit rating agencies and financial institutions, and conflict of interest problems within the agencies themselves represent another factor that threatens the credibility of surveillance outcomes. according to a report in the new york times ( june 3, 2010 ), certain credit rating agencies stand accused of distorting the rating outcomes in collusion with the issuer institutions being graded. this distortion of ratings can largely be seen as essentially a structural problem. in the current structure of the “ issuer - pays model ”, the issuers themselves pay the rating fees and rating agencies are able to provide consulting services to these issuers. in order to hide their assessment errors, credit rating agencies tend to persist in assigning high credit ratings even when an issuer faces a high probability of insolvency. of course, surveillance outcomes using such less than adequate ratings undoubtedly hamper appropriate policy decisionmaking. recently, fsb has finalized proposals for reducing reliance on cra ratings. i look forward to this plan being put in place in the near future. the obstacles to policy coordination can be classified into global and domestic dimensions. 1. global dimension as the interconnectedness of global economies has intensified, the need for international policy coordination has grown to a great extent. if a national jurisdiction imposes capital controls in the absence of policy coordination with its neighboring jurisdictions, the risks may spill over to other neighboring countries as opportunities for regulatory arbitrage open up. bis central bankers ’ speeches we ought to take a closer look at the recent experience of those emerging market economies that, after the onset of the financial crisis in september 2008, put in place a “ blanket deposit guarantee ” and consequently transferred the risks to their peers and neighboring countries. in addition, emerging economies ’ excessive accumulation of foreign reserve to counter sudden surges in capital outflows will itself accentuate global imbalances. international policy coordination to resolve this problem is embodied in the global financial safety nets (

initially had incremental downward adjustments to the near - term oil price assumption, but the longer term assumptions were relatively unchanged. by january it became clear that oil prices were likely to remain lower for longer, resulting in a more substantial downward revision over the entire forecast period. however, we did not believe that the price would remain at the levels of around us $ 45 per barrel, and we also assumed an upward trend over the forecast period. to date our assumptions have been more or less bis central bankers ’ speeches in line with actual outcomes. but changes in supply and demand conditions in international oil markets could require adjustments to these assumptions, with implications for the longer term inflation forecast. a similar situation, but in the opposite direction, faced the mpc during the 2006 - 08 period of rising oil prices. at that time the market price continually surprised on the upside, ( ultimately reaching around us $ 150 per barrel ), until the global financial crisis took the oil price on the downside of the roller coaster ride to levels of around us $ 35 per barrel. under such conditions, it is always difficult to know whether prevailing trends will persist over the forecast period, or if prices will stabilise or indeed decline. but we have to take a view, and whatever we decide could have a marked bearing on the inflation trajectory, given the 5, 7 per cent weight of petrol in the cpi basket. the other important and volatile assumption in the model is the exchange rate. again, we have to try and look through short term volatility and focus on longer term trends. in order to take account of movements between the currencies of south africa ’ s major trading partners, ( for example the recent sharp depreciation of the euro against the us dollar ), we focus on the effective or trade - weighted exchange rate. given the difficulties in forecasting the exchange rate, we make a simplifying assumption of a constant real exchange rate over the forecast period. this implies a change in the nominal effective exchange rate in line with south africa ’ s inflation differentials against its trading partners. we generally set the starting point at the prevailing index level, unless the mpc assesses this level is to be significantly out of line, in which case it may be set at a level deemed to be more appropriate. the focus of our discussions then becomes assigning the balance of risks to this forecast. we also look very carefully at different exchange rate scenarios, to get an idea of the sensitivity of the forecast