knowing the central bank ’ s assessments and reaction function can respond appropriately to economic developments. the third ingredient contributes to a better understanding of the objectives of monetary policy and the link between objectives and policy. this could underpin the credibility of the reaction pattern, and is also important for democratic accountability. in addition, the reaction function could change over time, for example due to a change in how the economy works or an improvement of the understanding of economic mechanisms. the criteria could then give some guidance to the public on how and why the reaction function might change. let me briefly explain how norges bank communicates the three ingredients of our communication, and let me start with the forecasts. chart 1 shows the forecasts of the key variables. the uncertainty bands are based on model simulations and reflect estimated variances of the different shocks. ( note that there is also a fan chart for historical values of the output gap, since there is also uncertainty about potential output in retrospect. ) communicating uncertainty through fan charts in the inflation reports was introduced by the bank of england in 1997. while the fan charts for inflation illustrate that inflation cannot be controlled perfectly by the central bank, this argument does not apply for the policy interest rate. the fan chart for the interest rate serves a different purpose : it illustrates that the interest rate path is not a promise, but a forecast which is uncertain. moreover, it reflects the central bank ’ s adjustment of the interest rate as a response to new economic developments, which are subject to uncertainty. petra geraats argues that central banks should not provide forecasts for the policy rate, since this could be confused with a commitment. she suggests that central banks instead could have forecasts for short - term market interest rates. our experience is that market participants and the public understand that our forecast for the policy rate is indeed a forecast and not a promise. due to the close relationship between the policy rate and short - term market rates, it should not, in my view, matter very much whether it is the policy rate or a short - term market rate that is projected. let me now turn to the second ingredient ; how norges bank responds to new developments ( “ shocks ” ). monetary policy becomes more effective if market participants can react adequately to economic news. in order to convey a broader reaction pattern, norges bank indicates how the bank would react should certain disturbances occur. however, since no central bank follows a specific reaction function mechanically, it would be misleading to present a single

david opiokello : basel ii and its impact on financial services in uganda address by mr david opiokello, acting deputy governor of the bank of uganda, at the opening of the 6th east african banking school, kampala, 3 july 2006. * * * background i am pleased to speak to you this morning at the 6th east african banking school annual seminar. since launching the banking school, the annual school is increasingly becoming a prestigious regional event for bankers and all other key players in the financial services sector. this is yet another commendable contribution towards capacity building and harmonization efforts within the financial sector of the east african sub - region. it is incumbent upon all of us stakeholders to continuously review the standards set by the school to ensure that we not only maintain but strive to improve them going forward. on behalf of governor e. t. mutebile, the patron of the uganda institute f bankers, i would like to formerly welcome the invited resource persons in their respective capacities and all distinguished participants. the subject i was asked to speak on namely “ basel ii and its impact on financial services is a complex one and i wish to state from the outset that the implementation of basel ii remains very much “ work in progress ”. briefly, the basel committee on banking supervision ( “ the committee ” ) issued a revised capital adequacy framework which is widely called basel ii in june 2004. this framework has been endorsed by the central bank governors and heads of banking supervision of the g - 10 countries. the group of ten ( g - 10 ) is made up of eleven ( 11 ) industrial countries namely ; ( belgium, canada, france, germany, italy, japan, the netherlands, sweden, switzerland, united kingdom and united states ). the committee believes that the revised framework will promote the adoption of stronger risk management practices by the banking industry worldwide. the new accord is designed mainly for internationally active banks and is to be implemented as of year end 2006. however one year of impact studies or parallel calculations has been allowed for the most advanced approaches to be implemented as of year end 2007. the committee recognizes that the adoption of basel ii may not be the first priority for the nong10 countries. furthermore the imf and world bank are of the view that future financial sector assessments will not be conducted on the basis of adoption of or compliance with the revised capital framework. rather, assessments will be based on the countries performance relative to the requirements of the committee ’ s core principles for effective banking