The adjustment of external debt will no doubt require continued current-account surpluses in the years ahead, which presupposes that the krona is weaker than its long-term equilibrium level. Moreover, the domestic demand trend needs to be balanced to prevent it from generating unduly high inflation. As central government debt is sizeable, it is also important that fiscal restraint continues, with the focus on debt repayment. However, a continuation of current-account surpluses of the magnitude we have seen in recent years is not to be expected. As domestic demand strengthens, the economy approaches full capacity utilisation and the monetary stance accordingly becomes less expansionary, the krona should appreciate, accompanied by diminishing surpluses on the current account. You would, of course, like to know the rate at which the krona would be linked to the euro in the event of Sweden opting to join the monetary union. Unfortunately it is still too early to answer that question. The rate will depend, for example, on Sweden’s competitive position relative to the countries that have already adopted the euro. We would also have reason to aim for a central rate that puts the Swedish economy on the right track and promotes a continued adjustment to internal and external balance. The optimum central rate might differ somewhat—though probably not all that much—from the market rate in the event of Sweden joining ERM2 if, for instance, Sweden’s monetary policy and cyclical position were to deviate from the euro countries’ prior to Swedish actually joining the monetary union.
The main points of monetary policy under this program were as follows: ·  The Central Bank set a ceiling on increases in net domestic assets. ·  The Central Bank paid close attention to keeping increases in reserve money in line with increases in demand. Open market operations were actively used during the year to mop up excess liquidity created by the increases in our net foreign assets. ·  The Central Bank monitored exchange rates throughout the year, with special attention to maintaining stability in the foreign exchange market. ·  Continuous domestic borrowing by the Treasury made a positive contribution to achieving all targets. ·  Turkish lira interests rates were determined mainly by the borrowing strategy of the Treasury. The Turkish Central Bank has played no direct role in the determination of interest rates. In an economy with market-determined interest and exchange rates, where a persistent public deficit is being financed mainly through the domestic markets, the monetary policy tools available to the central bank are few and of limited effectiveness. As noted above, interest rates are determined primarily by the borrowing activities of the Treasury. By the same token, foreign exchange rates are determined as a function of the external trade deficit (itself a function of growth) and the level of interest rates. Under these conditions, the central bank is absolutely obliged to keep the items on its balance sheet under careful control.