the bank. the government has today announced the appointment of anthony habgood to lead the bank ’ s court of directors and the oversight committee. i welcome the appointment of someone of his depth and breadth of corporate experience. independent oversight by the committee he will chair can strengthen the bank ’ s legitimacy and effectiveness. the oversight committee has access to internal papers, is able to observe meetings of policy committees, and is responsible for reviewing all aspects of the conduct of the executive of the bank, including the delivery of policy, the design of and adherence to rigorous processes and procedures, and the monitoring of our transparency and openness. modelled on the independent evaluation office of the imf, we will create a unit to support this, with a director reporting to the chairman of the oversight committee. it is not just our governance but also our commitment to transparency and openness that must be further enhanced. transparency and openness are central not just to our legitimacy to perform these new tasks on behalf of the citizens of the united kingdom. they are also central to our effectiveness in performing them. just as governor king described in his mais lecture 9 years ago, openness about what policy is seeking to achieve can make it more effective. 21 in monetary policy, that helps to anchor inflation expectations and to support countercyclical movements in the policy setting. to that end, we have introduced forward guidance to reduce uncertainty about the way monetary policy will be set as the recovery gains pace. our inflation report has evolved in the past year to contain more information about the key judgements underlying our forecasts and to widen the set of economic indicators for which we publish forecasts to include the labour market, components of gdp, the world economy and household incomes and saving. it will evolve further, including using our new organisational structure to draw stronger distinctions between staff and mpc forecasts. we will also review the case for releasing transcripts of our policy meetings after some years, and report publicly to the oversight and treasury select committees on the outcome of that review. through our strategic plan, we will also increase the transparency of our work on financial stability. we will publish the results of regular bank stress tests. as with monetary policy, we also intend to publish more of the research and analysis underlying our policy choices. over see king ( 2005 ). bis central bankers ’ speeches time, the financial sector will be better placed to anticipate our responses and as with monetary policy, increased transparency will make us not just accountable, but

. this increase in transparency should help commentators and financial markets alike to assess the actions of the mpc and to predict its future decisions. as i have said on other occasions, the aim of the mpc is to pursue economic stability, not to spring surprises on an unsuspecting world. surprises may be good for newspapers, but not for most other businesses. so what were the issues facing the mpc two weeks ago? remember that the aim of the mpc is to hit an inflation target of 22. sometimes inflation will be above the target, sometimes below. but over a run of years the outturn should be as close to 22 as possible. it is central to our remit that deviations of inflation from the target are regarded symmetrically. inflation can be too low as well as too high. for over thirty years, central banks have not, until recently, had many opportunities to show that they understand this. i can assure you that the mpc does. when circumstances change, as they have over the past few months, then so will our policy. the recent turbulence in international financial markets brings a new set of problems and risks, over and above those that resulted from the asian crisis which started in the second half of last year. it is important to distinguish between the crisis of the so - called “ tiger ” economies in asia, which, although clearly impacting on world trade, was indeed largely restricted to asia, and the more recent financial contagion which has afflicted almost all emerging markets and affected the financial system of the industrialised world. there are three aspects of the world economy which are relevant to our own position. first, private capital flows to emerging markets have in many cases come to an abrupt halt. that will have consequences for trade balances and activity in both emerging markets and industrialised countries. second, falls in equity prices around the world have reduced household wealth. and third, the sudden increase in risk aversion in financial markets is changing the balance sheets of financial institutions and some fear that this may lead to a credit crunch. the reduction in capital flows to emerging markets started over a year ago when concerns about the foreign currency exposures of a number of countries led to withdrawals of funds and a liquidity crisis in asia. that liquidity problem was compounded by macroeconomic and structural problems which varied from country to country. but the net effect was that capital flows to emerging markets in asia fell from over $ 110 bn in 1996 to only