easing took many by surprise and some of the decisions may, at first blush, look rather courageous. those of you who remember “ yes minister ” may recall that jim hacker, the hapless minister, became very nervous whenever sir humphrey suggested his decision was “ courageous ”. central bankers can have similar instincts. when faced with big decisions, there is a temptation for caution to prevail : do interest rates really need to be moved by that much? why not wait and see before resorting to the use of unconventional instruments? and indeed the mpc has tended to move rates in relatively small, sequential steps in the past. but i would argue that this is because for much of the period since the mpc was established the outlook for inflation evolved relatively gradually. that all changed following the collapse of lehman brothers. since the autumn of last year, we have experienced an unprecedented sequence of events that has caused a substantial re - assessment of the economic outlook and of the stance of policy necessary to keep inflation on track to meet the target. as the economy slowed sharply and inflation threatened to fall substantially below the target, the committee responded with unprecedented actions that were previously confined largely to the realms of theory. i believe that the operation of monetary policy during this period demonstrates the strength of the inflation targeting framework in action. the clear numerical target, combined with a framework of transparency and accountability, impose discipline on the mpc. they ensure that we take the decisions necessary to bring inflation back to target, however “ courageous ” those decisions might seem. i do not think it is coincidence that arguably the two most significant monetary policy decisions taken over the past year – the decision to reduce bank rate by 1. 5 percentage points in november and the announcement in february that the committee had sought approval to use the asset purchase facility to conduct large scale asset purchases – occurred in months when the inflation report was published. the quarterly forecast round provides an opportunity for the committee to reassess thoroughly its view of the economic outlook. this view is then explained and communicated via the inflation report and in particular through the projections for gdp growth and inflation contained in the report. in both november and february, the judgement of the committee was that, without further substantial easing in monetary policy, there was a significant risk of a large and persistent undershoot of the inflation target. given the transparency of these judgements and the clarity of the target, it would have been courageous not to have taken the decisions we did. the inflation target is symmetric. likewise

nominal spending, but initial indications remain encouraging. the growth rate of underlying broad money has picked up in recent months. gilt yields fell sharply following the announcement of the asset purchase programme and our initial purchases of gilts. yields have subsequently drifted back up, but this reflects a range of other factors and it is likely that yields are lower than they would otherwise have been. borrowing costs within the commercial paper market appear to have fallen as a result of our operations. and in the corporate bond market, spreads have narrowed sharply in recent months and issuance levels have been at record highs. however, this has coincided with a global rally in corporate bond markets and so it is difficult to isolate the incremental impact of our purchases. despite these encouraging signs, there have been some questions raised about the design and effectiveness of our operations, and i thought i would take this opportunity to address three particular criticisms that have been levelled against the asset purchase programme. the first is that the asset purchases have been too heavily skewed towards gilts and that we should have purchased a greater proportion of private sector debt. the aim of our purchases of corporate debt is to improve the functioning of corporate credit markets. this is in line with the remit specified by the chancellor when establishing the asset purchase facility. it is important not to judge the economic significance of these purchases by their scale. even relatively small purchases of debt, if appropriately targeted, can improve liquidity and lower the cost of finance to businesses. indeed, the very knowledge that the bank stands ready to purchase assets may be as beneficial as the actual purchases. and over a period of time, as market functioning improves, the quantity of private sector assets held by the asset purchase facility may well decline as assets mature and are rolled over into the private market. this should be seen as a sign of success not of dwindling support. the bank continues to review actively the case for extending its operations into other corporate credit markets, and recently announced its intention to extend its purchases to include commercial paper secured on loans for working capital. but given the relatively modest size of corporate credit markets in the uk, to increase significantly the scale of our corporate debt purchases would involve changing the nature of our operations. rather than improve their functioning, large scale asset purchases would risk crowding out private debt markets : substituting for markets rather than supporting them. that is not consistent with the aims of the asset purchase facility and could detract from the long - term efficiency of the economy.