the bank will for the time being operate its base rate in such a way as to help sustain the trend of recovery in economic activity. given the uncertainties surrounding the future growth path, the strengthening of private sector growth momentum will need to be underpinned through maintenance of our financial easing stance. in the process, the bank will pay greater attention over time to the possibility of economic imbalances arising as its accommodative monetary policy continues. adjustment of the degree of monetary policy easing will be calibrated appropriately, in overall consideration of financial and economic circumstances domestically and abroad. active efforts should also be made to boost the efficiency of policy operations. the bank ’ s liquidity adjustment capacity needs to be improved, by supplementing the system of monetary stabilization bond issuance to facilitate their friction - free market absorption. in consideration of financial market conditions, we need as well to downwardly adjust, step by step, the cap on our aggregate credit ceiling loans, which we raised substantially in response to the financial crisis, while at the same time refining the method of their operation. the bank should also continue its endeavors to improve its policy predictability and transparency through diversification of its communication channels, particularly given the heightened financial market sensitivity to monetary policy since the crisis. this year is the first year of our medium - term inflation targeting framework, which will remain in force until 2012. we need to anchor the general public ’ s inflation expectations through efforts to achieve convergence of the actual inflation rate with the mid - point of our inflation target, from a medium - term perspective. under the new inflation targeting regime, the tolerance range has been widened and the method of target operation has been changed so that its performance is now reviewed on an annual basis. to realize the intent of this new regime, we should implement our policy in such a way as to place increased emphasis on underlying inflation trends and future economic conditions. policy efforts should also be stepped up to consolidate financial stability. to this end, full monitoring of factors with the potential to cause financial instability is essential. international financial market risk factors, foreign capital in - and out - flows, and the financial health of household balance sheets should be closely monitored at all times. the bank will examine the risk factors not only of banks but also of non - bank financial institutions, based upon the mous on information sharing and joint examinations it signed with the government and the financial supervisory authorities last september. in addition, we should strengthen our cooperation with the relevant domestic institutions,

##having in this way should not be at all surprised if other european union countries sought to protect themselves against disruptive behaviour. with or without monetary union, within it or outside, it is of overriding importance that we all continue to pursue stability - orientated macro - economic policies. on that basis i can see no reason, and certainly no right under the treaty of rome, for distinctions to be made among the member states of the european union whatever the outcome on monetary union. indeed we would all suffer if they were, because it would reduce the potential benefits of the single market to europe as a whole. whatever the surrounding noise, we must surely be smart enough to avoid cutting off our nose to spite our face in that way. our national and collective economic interests are too closely aligned for that to be allowed to happen. so i am not particularly impressed either by the fears sometimes expressed about the economic penalties that will be visited on countries outside monetary union, or by the occasional rattling of the cage to try to bully them into it. unless we are convinced, as i say, in general or in any particular case, that beauty will in fact end up with prince charming, and not be condemned to long - term cohabitation with the beast, then it would be better for europe as a whole to delay until we were more confident of a happy ending. investment will continue to flow to this country so long as we succeed in maintaining an environment offering attractive returns, and our macro - economic and supply - side policies are a much bigger factor in that than the exchange rate. similarly the city will continue to flourish as europe ’ s international financial capital so long as the strongest financial firms from all around the world continue to find it attractive to conduct their business here. i see no signs of that changing : indeed the international business of the city continues to increase ; and that has very little to do with our national currency, or with an expectation that we will be among the first to merge it into the euro. so long as we are properly prepared, as we will be, and so long as we have in place efficient infra - structure, including for payments and settlements, as i assure you we will have - in or out, then the euro, if it comes, will be more of an opportunity than a threat to the city. there are those who sometimes give the impression that they think the euro could - by regulation or restrictions - be confined to within the territory of the euro area, and that