If we glance back in time, we can conclude that underlying inflation (UND1X) has on average remained close to the target since its introduction. Inflation also came down towards the target level much more quickly than most analysts had believed when we announced our target in January 1993. My opinion is that one factor contributing to this was the determined defence of the fixed exchange rate through both interest rate policy and through the political system rallying to show willingness to change fiscal policy to contribute to price stability. The fiscal policy consolidation implemented later during the 1990s also contributed significantly to enabling price stability to be maintained. As the Riksbank's monetary policy is guided by the development of inflation one to two years' ahead, the inflation rate is sometimes allowed to deviate from the target in the short term. If monetary policy were aimed at continuously minimising these deviations, it could require major adjustments in the steering interest rate, which would in turn lead to large fluctuations in production and employment. This was the reason behind the decision not to try to achieve the inflation target of 2 per cent as early as 1993 and 1994. We chose instead to allow the first effect of the increase in import prices that followed in the wake of the floating krona to have an impact on the system first and to accept a temporary and limited rise in the inflation rate. What we wanted to avoid was the second round of effects.
From an international perspective, these fluctuations have not been greater than those experienced by other countries with a floating exchange rate, but they have played a prominent role in the Swedish debate and have probably been discussed here in Finland too, bearing in mind our close trading connections. Let me say here that while the variations in the exchange rate have been larger than we anticipated, the effects of this volatility have been much less than might have been expected. Our central bank and many others with experience of managing a small, open economy with a floating exchange rate have come to the conclusion that exchange rate fluctuations have had less effect on both prices and production; while exchange rates and import prices have varied significantly, the impact in the consumer channel has been limited. What does the Riksbank have to say about a possible Swedish EMU membership? Over the past six months the political temperature has risen with regard to the EMU issue in Sweden. This is possibly a reflection of the fact that the Swedish people now see membership in a slightly more positive way. It is clear that the physical introduction of banknotes and coins has made the EMU project more tangible. The last time the Riksbank as an institution had reason to comment on the issue of whether Sweden should join the EMU or not was at the beginning of 1997 in connection with the presentation of the 1 report by the Swedish EMU commission.