is in part because the headwinds facing the economy are likely to take some time to die down. these headwinds include public balance sheet repair, a highly indebted private sector likely to be particularly sensitive to interest rates, as well as the drag from a 12 % appreciation of sterling over the past year and the persistent muted demand from our main export markets. over the medium term, several dynamics are likely to keep rates lower than in the past. uk rates could be restrained by continued imbalances between global saving and investment, together with potentially lower rates of global productivity growth. the mpc can also be expected to accommodate with lower risk - free rates the higher spreads that are likely to result from new regulatory requirements. all of these factors likely mean that, even when spare capacity is used up, bank rate will need to be materially lower than in the past in order to keep the economy operating at its potential and inflation at its target. the bank is well aware that a prolonged period of historically low interest rates could encourage other risks to develop. in the uk, the biggest risks are associated with the housing market, which is why last month the bank ’ s financial policy committee ( fpc ) took graduated and proportionate actions. the bank ’ s role is not to control house prices. nor can the bank do anything to address the severe structural problems across the uk caused by a chronic lack of new housing supply. our job is to mitigate the risks to the broader economy that arise from these underlying challenges. it is the prospects for household indebtedness that concern us. uk households start from a vulnerable position, with debt at 140 % of disposable income and the share of riskier mortgage lending rising markedly over the past year. housing debt can represent a major risk because mortgages are both the largest asset of uk banks and the largest liability of uk households. bis central bankers ’ speeches the fpc does not believe that household indebtedness poses an imminent threat to stability. underwriting standards are more responsible than in the past. but we have seen time and again how quickly responsible can turn to reckless, creating risks that ultimately derail the economy. allow me to explain why this matters to everyone from land ’ s end to john o ’ groats, even those who do not own homes. history shows that the british people do everything they can to pay their mortgages. that means cutting back deeply on expenditures when the unexpected happens. if a lot of

relatively more intrusive supervisory oversight. it also involves having wide - ranging policy tools, including macro - prudential policies, to mitigate and manage the risks emanating from excesses in the financial system. as the experience in the advanced economies has shown, the source of imbalances can arise in a number in segments of the economy, including from the household, the financial and the public sectors. this underscores the importance of prudence ; to ensure that growth is underpinned by sustainability and not excesses. a further lesson is to build buffers during the good times to better position us to withstand future shocks. equally important for policy in the emerging economies is to put in place the necessary foundations for long - term growth. this involves few areas of significance. the first is to create a competitive environment that allows for greater economic flexibility. this includes reforms for a sequenced and gradual removal of distortions prevailing in the economy, lowering the costs of doing business, and to streamline the involvement of the public sector in businesses. the second is to accord importance to investments in modern infrastructure, and to enhance technological readiness that will enable the economy to prepare for the changing economic and financial landscape. another area of significance is to ensure balanced and inclusive development. indeed, in the emerging economies, this is becoming increasingly urgent as the benefits of rapid development have not been evenly distributed, and income inequality has risen further even in the developed economies. going forward, economic empowerment will increasingly bis central bankers ’ speeches depend on access to technology, high quality education, healthcare and social security systems. equally important is greater financial inclusion. without policy intervention, the trend towards greater inequality could potentially intensify. in malaysia, many of the necessary policy strategies for long - term growth in these areas of significance are already at various stages of implementation, with considerable progress being made in certain areas. as the technological gap between the emerging and the advanced economies converges, it will become increasingly critical for an emerging economy such as malaysia to transition from growth based on capital accumulation, to growth based on productivity improvements. in addition, the rising global inter - connectedness characterised by the emergence of highly intricate networks such as the increase of global manufacturing supply chains, increases the susceptibility of industries to both cascading failures, as well as to the rapid re - orientation of business competitiveness through disruptive innovations such as in the mobile computing industry or the possible rise of additive manufacturing. to advance forward in this direction