work. for inflationary expectations not to be anchored at levels where we do not want them, we need a more resolutive anti - inflationary policy measures. 1 / 4 bis - central bankers'speeches the reason for taking this stance issupported by the currentsituation that fiscal policy this time around will not be in synch with the restrictive policy taken by central banks. driven by social pressures to cushion families hit by fuel and food shortages accompanied by astronomical price increases, governments are responding with subsidies of all sorts but mostly aimed towards fuel and food prices. for governments political stability takes precedence to other objectives. still central banks cannot neglect their own mandates. the upshot is that this expansionary fiscal policy will make the work of monetary tightening that much harder. confronted with many " unknowns ", decision makers turn to history to enlighten the course of action. history teaches its lessons not by means of similarities, but rather through differences. for example, the bout of high inflation sweeping across the ( western ) world today has led many commentators to draw comparisons to the 1970s. on the surface similarities are glaring, notably in relation to energy supply shocks, and in particular the warning that even a one - offshock to prices could cement a structural high inflation regime. but it is essential to bear in mind that the institutional contexts are very different today compared to half a century ago. when inflation began to pick up in the late 1960s / early 1970s, the socio - economic consensus in the west revolved around the " keynesian paradigm ". in the post - war decades, the state actively steered the economy towards full employment. an accentuated interventionist agenda addressed inflation amid restrictions on capital flows and managed exchange rates. such policies naturally empowered organised labour : unions'significance in the national economy grew and workers were able to extract increasing real wages and benefited from improved standards of living. a wage - price spiral that transformed a one - off shock to inflation into a structural feature of advanced economies. the word stagflation takes us to those days. it is in this context that the west was hit by oil shocks in 1973 and 1979 unleashing upward pressure on inflation and slowing real economic growth across major economies. fast forward to 2020s, the pandemic and the war in ukraine acted like two large supply shocks that put out of balance the global economy. prices have gone up, and economic activity is slowing. just like in the 1970s, the risk is that supply shocks spill over

that controlling banks ’ risk - taking would be in the long - run interests of the kingdom. the fear and anxiety of the last weeks of september and early october began to subside as people came to recognise that the banking system was continuing to function normally. people who had taken money out the banks began to return, and for the last several months banks ’ deposits have been very stable. we have also seen banks continuing to report solid profitability, despite the impact of the crisis in the final quarter of 2008. the second impact of the lehman collapse was on the liquidity of global markets. there was a massive rise in risk aversion, reflected in a variety of indicators, including a rise in risk premiums, the rising cost of credit default swaps, and steep falls in global stock markets. activity in interbank markets virtually ceased. the shortage of global liquidity had an impact even here in the gulf. as recently as july 2008 the liquidity position of the gcc had never been stronger. in part, this was due to the high price of oil, but it also reflected large speculative inflows of capital betting on a possible of revaluation of gcc currencies. as the financial crisis worsened in september, we began to see rapid acceleration in the outflow of capital. speculative positions were quickly reversed as the banks which had placed those bets now discovered that they needed the liquidity closer to home. the result was a liquidity squeeze on banks throughout the gcc, from which those in bahrain were not immune. recognising the liquidity pressures on bahrain ’ s banking system, the central bank took action to alleviate the problem. we extended the range of collateral that we would accept in our lending operations with the banking system, so that this now includes long - and shortterm ijara sukuk issued by the kingdom of bahrain. we are also looking at extending the scope of acceptable collateral still further. our main policy initiative, however, was to establish a foreign exchange swap facility. this allows banks that have us dollars to bring them to the central bank to swap for bahraini dinar at no cost. as the federal reserve and other leading central banks had taken measures to provide us dollars to financial markets in almost unlimited quantities, banks in bahrain could obtain dollars and swap them for dinar whenever needed. the result has been to offset to a large degree the liquidity impact of capital outflows. we have done so in a way that