there are a number of reasons why this is so but, for me, an important reason is that the more prescriptive the code is, the easier it is to get around. rules are easier to arbitrage than principles. moreover, the more prescriptive and the more precise the code, the less people will think about what they are doing. if it ’ s principles - based and less prescriptive then, as i just said, market participants will have to think about whether their actions are consistent with the principles of the code. so, we have worked with the industry to produce a principles - based code rather than a set of prescriptive regulatory standards. it will not impose legal or regulatory obligations on market participants, nor will it supplant existing regulatory standards or expectations. but we do expect the principles in the code to be understood and adopted across the entire fx market. our approach to adherence has a number of dimensions. we laid out our overall approach to adherence to the code in new york in may last year. 6 we will provide a more comprehensive description of the suite of mechanisms to support adherence alongside the release of the code in may. one critical dimension is market - based adherence mechanisms. an important element of discipline should come from the market itself and we are working closely with market participants on this. the adherence to a voluntary code will only come about if firms judge it to be in their interest and take the practical steps to ensure the code is embedded in their practices. such practical steps would include training their staff and putting in appropriate policies and procedures. we have provided a draft statement of commitment for firms to publicly demonstrate their adherence to the code. one reason for a public demonstration is that firms are more likely to 3 / 5 bis central bankers'speeches adhere to the code if they believe that their peers are doing so too. that is, an important source of pressure to adhere should come from other market participants. without blaming them for what occurred, more scrutiny from counterparties about how their fx transactions were being executed may have helped to reduce the incidence and severity of the market abuses that occurred in the past. one reason for this lack of scrutiny was that fx transactions were sometimes regarded as ancillary to the core business, notwithstanding their potential impact on returns. this attitude seems to be in decline, though it still persists. ultimately the success of the code in promoting integrity and restoring confidence in the wholesale fx market lies in the hands of its participants. another aspect of

the underlying measure, which of course is by design. hence, if the central forecast for cpi inflation at a two year horizon was 2½ per cent, the chances of the outcome being between 2 and 3 per cent, based on this historical experience, would be about two in five. the chances of being between 1½ and 3½ per cent would be three in five. i note in passing that, if this is a reasonable description of forecast accuracy, it suggests that the configuration of the inflation target is a pretty good one ( though i hasten to add that, when it was first set out, we did not really have a great deal of confidence in the accuracy of inflation forecasts ). it would, in my judgement, be vastly preferable for discussions of forecasts to be couched in more probabilistic language than tends to be the case in practice, and for there to be more explicit recognition that the particular numbers quoted are conditional on various assumptions. careful observers will have noted that the latest forecasts published by the bank actually have a range for growth and inflation at the horizon. moreover, there is more extensive discussion these days of the ways in which things could turn out differently from the central forecast. this goes at least some way to recognising the inherent uncertainties in the forecasting process, and is also important in relating the forecast to the policy decision. taking account of the accuracy statistics i have quoted above, we can characterise the rba ’ s latest published outlook as suggesting that, absent large shocks to oil prices or the australian dollar, or further extreme weather events, or the world economy taking a serious turn for the worse ( say because of events in europe ), australia ’ s inflation rate in 2012 has a pretty good chance of being between 2 and 3 per cent. the chances of a similar outcome in 2013 are also reasonable, though with slightly greater probability that inflation would end up above 3 per cent in that year than seems the case for 2012. that is, the point forecast is a little higher in the second year. even so, a margin of uncertainty is inevitable. a big change in any of the variables subject to assumptions would quite easily push outcomes away, and maybe a long way away, from the forecast. this degree of uncertainty can of course be quite disconcerting. it is only natural to desire certainty. everyone wants to know what will happen. we all want to believe that someone, somewhere, does know and can tell us what