As a result, central banks tend to prefer a monetary policy strategy that lies somewhere between these two extremes, avoiding excessively large interest rate adjustments but not hesitating to adjust when this is called for. The Riksbank normally formulates monetary policy with a view to inflation one to two years ahead. This unfortunately means that the repo rate has to be set with the aid of forecasts and forecasts can err. Moreover, there is always the possibility of price shocks that are a-cyclical but still affect the rate of inflation. A forward-looking policy has the advantage, however, of permitting an implementation that is smoother yet firm. The Riksbank reacts to the inflation forecasts in a determined manner but as the forecasts include an assessment of the extent to which inflationary impulses are transient, over-reactions are avoided. The supply shocks I referred to earlier as having occurred during the past year are examples of price fluctuations that, with the monetary policy strategy the Riksbank has chosen, can occasion deviations from the inflation target. This is not the first time inflation has been affected by occasional factors. In the late 1990s, for example, successive deregulations of electricity and telecom markets resulted in deviations from the target, the difference being that at that time the gap was on the downside. What has happened now is the opposite. With our monetary policy strategy, this is a natural case of striking a reasonable balance between maintaining the fixed value of money and avoiding excessively large fluctuations in economic activity.
It is of paramount importance that the decision on ERM II entry be taken only when macroeconomic fundamentals provide for a realistic deadline for the entry into the euro system in, say, two or three years' time. Still, there are some really good arguments for as rapid a possible EMU accession... For an accession country, it is important that the experience of past enlargements has shown - high rates of real convergence can be achieved in connection with the EU accession. There are several explanations for this phenomenon, including full integration into the single market, reduction of various political and economic risks etc. Adopting the euro can support economic integration through a higher correlation in economic cycles - as well as lower transaction costs and lower risk premiums. It is also clear that EMU participation reduces monetary uncertainty. For instance, had it not been for the EMU, European financial markets could probably have been much more turbulent during the Asian and Russian crises and the recent slowdown of the global economy. For an accession country, a rapid ERM-EMU accession could mean a further rise in its international credibility - take, for example, the developments in Greece who clearly benefited from ERM2 credibility in 1999, after the Asian crisis.