Inflation prospects difficult to assess One consequence of the Riksbank basing its analysis on conditions in Sweden — and not being guided by the actions of other central banks — is that in the past the repo rate has been held at a considerably lower level than in the United States. There have also been periods when our instrumental rate has been below that of the European Central Bank. The central factor when the Riksbank sets its instrumental rate is the prospects for inflation one to two years ahead. A prospect of inflation above the 2 per cent target normally leads to a repo rate increase, while if inflation is expected to be lower than the target level, the repo rate should normally be lowered, and if the rate of price increases is forecast to lie around the target level of 2 per cent, the rate should be left unchanged. The economic outlook in the rest of the world ought to imply a weak tendency in Sweden as well, with an attendant easing of inflationary pressure and consequently a further reduction of the repo rate. However, the decision-making situation is not that simple. Three things in particular make the picture more complicated: ·  Firstly, inflation is currently above the Riksbank’s 2 per cent target. The greater part of the increase is admittedly attributable to a number of clearly defined transitory factors that are calculated to drop out next spring. Food prices, for example, moved up in connection with mad-cow and foot-and-mouth disease.
Other value-add services for these bond investors would likely be launched in the months ahead. Mainland-Related Lending 10. The bread and butter of banks are of course their lending businesses. There is no point in collecting deposits from customers if the bank cannot find useful and hopefully profitable outlet for these funds. With the rapid development of the Mainland economy and the deepening of the Reform and Opening Programme, Hong Kong has become the most important financial intermediation hub for investments into and out of Mainland. The HKMA has been collecting statistics under the category of “Mainland-related lending” by banks in Hong Kong. This category includes lending to Hong Kong and foreign corporates investing in the Mainland and to Mainland corporates, mostly large state–owned enterprises. As Hong Kong is becoming an important source of funds for foreign direct investments into the Mainland and overseas direct investments from the Mainland to overseas markets, the size of Mainland-related lending has grown from a very small amount in 2009 to $ trillion now, which accounts for around 45% of the total bank loans in Hong Kong. This is a very significant component of our banking system and is of critical importance to the profitability as well as soundness of our banks. So clearly it is crucial that, in growing this lending business, banks must maintain a high standard of risk management in underwriting these 2/4  BIS central bankers' speeches  loans.