independence is as widely accepted in asia. of course, the need for strong independence so as to enhance anti - inflation credibility has not been as big an issue in asia as in some other regions, because inflation performance in asia has mostly been very good. but the same principle arises in the conduct of bank supervision, whether that be in the central bank or another body : the officials in charge need to operate within a clearly understood framework, but without political interference in their day - to - day decisions. central bank independence needs to be more than just of the political variety though : it also means the central bank having a capability of resisting the short - termism of financial markets ( and, for that matter, the occasional intellectual fad which emanates from academia ). key to a central bank's role in fostering financial stability will be a capacity and willingness, on occasion, to cast a sceptical eye on pricing of assets and risk, and to question the idea, always heard in times of euphoria, that'this time it is different '. naturally, this comes with countervailing disciplines on the central bank of a governance nature. with operational independence comes the requirement to inform the public what we are doing, and why, and an acceptance that we will face public and parliamentary scrutiny for our actions. so communication, to facilitate accountability, is important. there are some differences between central banks here : some communicate more fully and more frequently than others. but the similarities are probably greater than the differences. in most cases these days, the schedule of decision - making meetings is known ; the goals of policy are fairly clear ; and policy makers release a great deal of information about the way they are reading the economy and why they took the decisions they did. alongside this accountability comes an increased focus on the role, composition and processes of the body which makes the policy decision. in some central banks, that body is a group of full - time experts ; in others, it is a single individual. in our own case at the rba, the decision - making body includes a majority of non - executive directors who generally bring a wide range of expertise and experience from outside the specialised field of central banking. there is, from time to time, discussion about which set of arrangements is best, and reasonable people can and do differ on this. but experience seems to be that several types of decision - making structure can work acceptably well. the question'who is on the board?'is

and property prices which in turn affect consumption decisions. the interest rate channel therefore affects demand for goods and services and thus the output gap with some time lag through many complicated mechanisms. changes in the use of resources or the output gap then affect inflation in turn, with some time lag. the impact of changes in the instrumental rate on demand and inflation may also be affected by the lending rate set by the banks. the channel that is mediated by the behaviour of the banks can be generally referred to as the credit channel. higher interest rates may, for instance, reduce the willingness of the general public to keep funds deposited in current accounts, which have a very low return. deposits have a very low financing cost for the banks and if they have to finance an increased proportion of their lending in another way, the banks may compensate for this by a higher lending rate. however, it is uncertain how the behaviour of the banks affects the impact of monetary policy. changes in the instrumental rate have an effect through the " exchange rate channel " partly by changes in the nominal exchange rate for the krona affecting the relative prices for net export. higher interest rates should thereby strengthen the domestic currency and make domestic goods more expensive relative to other goods and vice versa. higher interest rates thereby dampen export at the same time as import becomes cheaper and increases. lower demand for domestic goods contributes to reducing the use of resources and subduing inflation. a stronger nominal exchange rate dampens consumer prices at the same time since part of consumption is directed towards imports when prices are dampened. however, lower import prices also increase the real purchasing power which per se contributes to increasing purchasing power. in economies with diversified industry an increase in the interest rate thus also leads via the exchange rate channel to lower inflation. the strength of the effect depends inter alia on income and price elasticities and on the composition and size of foreign trade. in certain cases the positive effect on incomes from stronger currency can even predominate and vice versa. changes in the nominal exchange rate probably have less impact on import and export prices if the changes are not considered to be lasting. in a floating exchange rate regime, it is therefore probable that changes in the nominal exchange rate will not have such a great effect as in the case of a devaluation or revaluation in a fixed exchange rate regime. the role of inflation expectations the channels i have now pointed out operate in most cases through demand and the output gap. one channel that is probably very important and