Grade was speaking to mark the publication of the BBC's annual report, which was brought forward to today before Monday's Commons debate on the BBC's Charter renewal.
He said the pressure to achieve cash savings was still on. The BBC cut 1,132 posts in the last year and will cut more than 2,000 over the coming year to achieve its next target of a £112m cost reduction.
"These savings will release the funds that are necessary to address audience expectations of quality content," Grade said.
The BBC's creative output was judged by the governors to have improved this year, but they will be watching to ensure that BBC One in particular improves its early evening schedule.
"Overall, the Governors assess the BBC to have had a better year creatively and are pleased that total BBC reach to audiences is broadly stable ... we will be looking for more evidence of creative renewal in the year ahead, and expect BBC One to make a particular effort in its early evening schedule," Grade said.
The governors want the channel to continue reducing the proportion of repeats in peak-time, giving it a new target of 5% of peak-time viewing in 2008/9. This year it was reduced to 8.9% from 9.7% in 2004/5.
This year's report is the last before the board of governors is replaced by the BBC Trust as a measure to distance the governors from the corporation's executive team.
The board was happy with the adjustments to executive pay made over the last two years, leaving basic pay 4.5% above the market median, but total pay nearly 20% below the market median.
Director-general Mark Thompson again waived his bonus - last year he said he would not take it while enacting large scale job cuts. His basic pay for 2005/6 was £609,000.
The BBC's accounts look in good shape. Finance director Zarin Patel highlighted the fact that several years of deficits had come to an end, with a positive cash balance £18m this year.
Licence fee revenue topped £3bn for the first time and the combined cost of collection and evasion at 9.6% of revenue is the lowest level since the BBC took over responsibility for collection.
The BBC's commercial arm BBC Worldwide doubled its profits to £89m and increased the cash it returned to the corporation by 28%.
The pension scheme, however, now has a bare surplus of £13m, compared with its last formal valuation in 2002 of £441m.
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