categories of creditors other than international financial institutions. they include mechanisms that can be used to limit the use of official financing to fund external deficits or domestic capital outflows or to repay private sector debt. and they provide ultimately for capital controls, as part of payments standstills, in conjunction with imf programmes. so we have the principles and we have the tools. what we still need to develop is a better framework of understanding as to how they might normally be applied. i agree of course that we should not adopt hard and fast rules, because to a degree each case is different. but we do need to develop some kind of presumption about the limits within which imf support might be made available to member countries in different situations, and the conditions, relating both to adjustment action and to private sector financing that would normally be applied. we need to develop a clearer presumptive framework of this kind – no doubt with provision for exceptions where they could be properly justified – before the next crisis hits us, because what debtor countries and their private sector creditors believe they can expect will influence their behaviour in the meantime. what we all have to recognise is that the exceptional amounts of official funding committed during the asian crisis are far less likely to be forthcoming in future. and to the extent that official funding is forthcoming, conditions may well be attached to ensure that it is not used simply to re - finance payments of short - term debt to private sector creditors or to fund a resident capital outlflow. several of the tools which the g7 communique identified are designed to have precisely this effect. the last thing that the official international community wants is to get dragged into the micromanagement of relations between debtor countries and their creditors. we would all agree on the desirability of voluntary solutions, which might be easier to achieve if borrowing countries and their major creditors – above all the short - term lenders – were to establish, during the good times but on an on - going basis, arrangements for regular dialogue. nor would anyone want to insist upon the imposition of constraints on capital outflows. but where, in more extreme situations, an agreed solution in relation to external debt is not immediately achievable there may be a logical case for the orderly suspension of payments until a better alternative can be put in place. this could have advantages for committed private sector creditors as well as for the debtor country and the official international community if it prevented free riders running for the

bank calculations. one should always take the opps with a healthy dose of salt. they are based on a particular characterisation of the mpc ’ s objectives. ( we ask a simple policymaking “ bot ” to stabilise inflation and output, placing four times more weight on the first than the second, and to pay some heed too to the “ smoothness ” of interest rates ). the resulting path obviously depends on the extent to which interest rates are assumed to affect demand and inflation. the higher the policy multipliers the smaller the “ optimal ” response of interest rates is likely to be. it ’ s also conditional on – and therefore highly sensitive to – the particular forecast on which it ’ s based. any observer – indeed any individual mpc member – who sees the risks differently from those in the central projection will come to a different conclusion about the most likely path of future interest rates. furthermore, as regards the comparison in chart 10, the energy price cap and the currency have not been the only pieces of news since august that might have influenced market expectations. for example, forward interest rates rose a cumulative 50bp on the ( nine ) days on which uk price and wage data were released. the market may also be wary about further changes in fiscal policy, and to take a skewed view of the risks in that respect. bank of england nevertheless, the graph does serve to illustrate quite how significant the moves in markets have been in the past couple of months or so. if bank rate really were to reach 5¼ %, given reasonable policy multipliers, the cumulative impact on gdp of the entire hiking cycle would be just under 5 % - of which only around one quarter has already come through ( chart 11 ). chart 11 : most of the impact of cumulative tightening implied by market prices yet to come percent - 1 - 1 - 2 - 2 impact of tightening on gdp - 3 - 3 - 4 - 4 - 5 dec 2021 dec 2022 dec 2023 dec 2024 - 5 dec 2025 chart shows estimated impact of policy tightening to date and as implied by forward market interest rates at close on 17 october, relative to a counterfactual in which bank rate is held constant at 0. 1 %. the exercise only considers the direct effects of tightening, and abstracts from any indirect effects via, for example, the exchange rate or incomplete pass - through. source : bank of england, ons, bloomberg finance l. p. and bank calculations