General Manager's speech

Speech by Mr Malcolm D Knight, General Manager of the BIS, on the occasion of the Bank's Annual General Meeting, Basel, 26 June 2006.

Abstract

Mr Knight discusses the implications of the recent increase in financial market volatility and rising real long-term interest rates for central banks. Against the backdrop of the secular decline in real yields since the late-1990s, the prices of many financial and durable real assets and commodities have risen substantially in recent years. Surprisingly, these increases and strong aggregate demand growth for several years have not yet led to a generalised rise in inflation. But uncertainties concerning future asset price movements and inflation risks now seem to be greater than they have been for some time. This means that central banks need to be especially vigilant towards the threats to medium-term price stability. At the same time, monetary policy has to remain pragmatic. The rise of new large economies poses additional challenges at the current juncture. The way in which these economies change the global inflation process and the international adjustment mechanism has to be better understood. Finally, the structures of multilateral cooperation need to adapt to the new global economic realities.