. however, a look at domestic and external conditions finds there to be a variety of potential risks in many places. if major country central banks, following the us federal reserve, reduce the degrees of their monetary policy accommodation due to the strengthening of their economic recoveries, then there is a possibility that a shrink in the volume of global liquidity could destabilize the international financial market and thereby constrain the global economy ’ s recovery. there is also a chance of the growth in world trade slowing, due to worsening trade conditions in consequence of strengthened protectionism in major countries. the possibility also remains that, as north korea risks surface occasionally, they can cause expanded financial market volatility and negatively affect economic sentiments. on the top of this, the structural problems that are limiting our economy ’ s vitality also continue to exist, among them our low birthrate and population aging, the deepening of our segmented labor market and of the income imbalances, the buildup of household debt, and the delay in our development of next generation high - tech industries. under these circumstances, if we want our economy to take one more leap forward, while also sustaining the momentum of our current economic recovery, we have to continue our reform efforts to improve the make - up of our economy and expand its growth potential. and i think that the present time, when the trend of growth is recovering and fiscal policy is being operated expansively, is a suitable one for pushing ahead with reform. the government and private economic actors will have to cooperate on this, so as to avoid missing a golden opportunity. dear members of the bank of korea! let me talk now about the main tasks that the bank of korea will have focus on carrying out this year. we will need to conduct our monetary policy so as to ensure that sustainable growth continues and consumer price inflation can be stabilized at the target level over a medium - term horizon. given the forecast that the demand side inflationary pressures will not be high, even though the economy ’ s solid trend of growth will continue this year as well, it will be desirable to maintain our accommodative monetary policy stance for the time being. at the same time, we should pay more attention to the possibility that the prolongation of this stance will cause a deepening of our financial imbalances, and the cumulative effects of these imbalances on growth and inflation over the medium - to long - term horizon. keeping this in mind, we

rate ; and second, the so - called fundamental spread, which is mapped from the credit rating of the borrower and used as a proxy for risk. one desirable effect of the matching adjustment is to insulate an insurer ’ s capital position from volatility in market prices. in its november financial stability report, the financial policy committee concluded that the matching adjustment reduces potential instability across the financial system. another effect is to bring forward part of the future yield on an insurer ’ s assets into current capital. a bigger matching adjustment therefore improves an insurer ’ s return on solvency ii capital. http : / / www. bankofengland. co. uk / publications / pages / fsr / 2016 / nov. aspx all speeches are available online at www. bankofengland. co. uk / speeches under solvency ii, matching adjustment assets need to be “ bonds or other assets with similar cash flow characteristics ”. they also need to have cash flows that are “ fixed and cannot be changed by the issuers of the assets or any third party ”. uk insurers can restructure assets through internal securitisations in order to produce senior tranches that meet the solvency ii tests for the matching adjustment. a material amount of illiquid direct investments by annuity writers have been transformed in this way. the matching adjustment benefit is capped at the level of bbb - rated assets. insurers are therefore targeting a matching adjustment ‘ sweet - spot ’ in order to maximise the return on solvency ii capital. market contacts have described to us an excess of funding for infrastructure projects near that sweet spot. given the potential impact on an insurer ’ s capital position, we are taking a close supervisory interest in this area. first, we will consider whether insurers are taking an appropriate matching adjustment in calculating their base balance sheets. put another way, the fundamental spread must fully reflect the risks the insurer has retained. restructured direct investments typically have neither market prices nor external ratings. an appropriate matching adjustment therefore depends on an insurer ’ s own valuations and internal ratings. we will verify that internal ratings capture the full range of risks. they should not have a persistent bias compared to those from regulated external credit assessment institutions ( ecais ). yesterday we published supervisory statement 3 / 17. it sets out how we will seek to obtain assurance on the exposures which present the greatest risk to our objectives. it also explains how