The experiences during the 1970s and 1980s contributed to the formation of the new monetary policy regime, which targets low, stable inflation. The inflation target has been set at 2 per cent. That level allows some leeway to zero inflation, which, among other things, reduces the risk of deflation and enables adjustments in relative wages without normally requiring nominal wage decreases for different groups in the labour market. On the whole, as I mentioned, it has also worked well. Inflation has fallen at the same time as economic growth has been relatively high compared with the immediately preceding decades (see Chart 2). Unemployment has gradually declined since the crisis in the early 1990s, even though it is considerably higher than in the 1960s. After the introduction of the inflation target, we thereby had maybe the clearest evidence that there is no trade-off between inflation and unemployment since both fell at the same time during the 1990s. The absence of a long-term relationship between inflation and unemployment has also been confirmed by extensive studies in a large number of OECD countries. Monetary policy and employment in the short term Having now spoken about the Riksbank’s inability to influence employment in the long run, the question remains of how monetary policy can affect employment in the short term. Monetary policy can have a short-term impact on economic activity and therefore at best reduce the fluctuations in the cyclically determined component of unemployment. 2  BIS Review 65/2004  Monetary policy is estimated to affect inflation 1-2 years ahead.
In addition, we have been active internationally – both bilaterally and multilaterally to ensure we have a coordinated, well-informed and mutually supportive approach. This includes our work as a member of the Financial Stability Board. So, while there are challenges, we are very much alive to them. We monitor the risks closely and work continuously with our partners to prepare, and stand ready to take any appropriate action. Opportunities for Hong Kong Having acknowledged the immediate challenges, I think it’s time now to turn towards the opportunities, above all in this region. For while the challenges from the West are deep, they should not blind us to the opportunities within Asia. I would say that the coming opportunities for the banking industry here are bright – even if at times they may appear to be obscured by clouds abroad. In fact, I believe that they put us on the threshold of a new era for the banking industry in Hong Kong. I would like to highlight two of the most promising opportunities. The first is the offshore RMB market, which has developed rapidly over the past two years. The second is the increasing demand for asset and wealth management services, both institutional and individual. Opportunity 1: offshore RMB market On the offshore RMB market, Hong Kong bankers have been the first ones to exploit the new business opportunities.