yields in advanced economies, including the uk, over the past month. the main common driver is speculation that the us federal reserve will soon reduce the pace of its asset purchases. that has – not surprisingly – affected yields in other countries because safe, liquid sovereign bonds of the world ’ s largest economies are close substitutes for each other. in the uk, these movements have been reinforced by growing expectations of recovery. as we explained at the time of the forward guidance announcement, a rise in the yields on long term bonds is consistent with our commitment to price stability and supporting the recovery. market interest rates at terms of 2 – 5 years have also risen recently. the date at which the markets expect the first increase in bank rate has moved in from the end of 2015 to mid2015. one possible explanation is that markets think that unemployment will come down to 7 % more quickly than we do. since the aim of our policy is to secure recovery as quickly as possible, that would be welcome. but policy is built not on hope, but on expectation. and we estimate there is only a 1 in 3 chance of unemployment coming down that quickly ( chart 1 ). 4 furthermore, thinking unemployment will come down faster than we expect isn ’ t enough to believe interest rates will rise soon. as i said earlier, the 7 % threshold is a staging post to assess the economy. nobody should assume that it is a trigger for raising rates. another possible explanation is that the increase in shorter - term yields, like the move in long yields, reflects changing expectations of us monetary policy. but the us recovery is much further advanced than that in the uk. while much has been made of the special relationship between the us and uk, it is not so special that the possibility of a reduction in the pace of additional stimulus in the us warrants a current reduction in the degree of monetary stimulus in the uk. we are not alone in that belief – other major independent forecasters such as the obr and niesr share our view that unemployment will be above 7 % in 3 years ’ time. the mpc ’ s assessment of the outlook for unemployment and likelihood of hitting the threshold is described in the august inflation report, available on the bank ’ s website at http : / / www. bankofengland. co. uk / publications / pages / inflationreport / 2013 / ir1303. aspx. bis central bankers ’ speeches movements in longer - term market interest rates are certainly relevant, but

##cyclicality in the financial system, and that provides momentum for reform to strengthen financial infrastructure and governance. thailand, like most emerging markets, has also been struggling with this issue. and i want share with you some of the policies that we have pursued in response to the challenge. it is a long journey, and it is the journey that we are making. on the issue of reducing risk from procyclicality of the financial sector, prevent excessive lending, and ensure adequate capital. in our view, the key issue here is to reduce a possible large swing in the availability and the price of credit stemming from the tendency of banks to underestimate risks in good times, and then to overestimate them in bad times. on this, our approach has been to ensure that banks ’ capital and riskmanagement policy is forward - looking by using a combination of three instruments. the first is stress testing to ensure that bank ’ s own internal process for assessing the adequacy of capital and overall risk management is alert to possible key risks. thai banks have begun conducting stress tests as part of the supervisory process since early last year when we first underwent the fsap assessment. from our experience, we find stress testing to be a useful and effective instrument for helping banks in formulating strategy for capital and risk management in a forward - looking manner. also importantly, it provides a formal process for a two - way dialogue between banks and supervisors on risk management and on other financial stability issues. the second instrument is the fair value accounting rules or ias 39, which we have adopted for non - performing loans and for structured products. in our view, these rules can help strengthen market discipline over bank lending and investment. and because fair valuation involves marking to market, its adoption also helps make provisioning for asset impairment more forward - looking. the third instrument is prudential policy to limit excessive procyclicality. in the past five years, when capital inflows were strong, we have put in place prudential measures to stem the build - up of excessive credit growth on consumer spending and on speculative housing demand. these include measures on credit card approval and maximum loan - to - value ratio for luxury housing. as i noted earlier, in the context of monetary policy framework, combining inflation targeting with macroprudential measure offers a pragmatic approach to deal with concerns on financial stability and asset prices without compromising the discipline of monetary policy with respect to its primary inflation