Six months ago, at the time of the last Monetary Policy Report, the global economic and financial environment was volatile and highly uncertain because of the adverse situation in Asia and the fallout from the Russian debt moratorium. Many emerging-market economies, particularly in Latin America, were hit by large capital outflows. And, as nervous investors sought safe havens, interest rate spreads on emerging-market debt widened dramatically, as did those between corporate and government bonds in the industrial countries.

Since then, the situation in global financial markets has improved. Interest rate cuts by central banks in all major countries have helped to rebuild investor confidence.