A solution that at one point in time matches the requirements made of us will perhaps not work at all when conditions change. And the world around us is of course anything but static. Then there is also a measure of “learning by doing” in this. From unchanged repo rate… Up to October 2005 our inflation forecasts were made under the assumption that the policy rate would not change during the forecast period. The advantage of this method was that it illustrated in a simple manner when there was reason to change the policy rate. If the forecasts showed that inflation two years ahead would be lower than two per cent, this was a signal that the interest rate needed to be cut. If inflation would be higher, the interest rate usually needed to be raised. This rule was easy to understand and was therefore a good educational tool. This characteristic was particularly important when the rule was introduced. It was a question of winning back confidence in monetary policy and anchoring inflation expectations around the new target of two per cent. To succeed in this it was necessary for households, companies and the financial markets to understand the motives behind the monetary policy decisions. Here the simple rule probably played an important role. However, there were also considerable disadvantages. For instance, it is not a particularly realistic scenario for the policy rate to remain unchanged a couple of years ahead. It was therefore difficult to make forecasts that were totally coherent.
However it is also because we live in a changing world, where we must adapt as demands on our operations change – demands that may come from various directions. My theme today is that a modern, independent central bank needs to take many considerations in its monetary policy work, not least in its communication. There are above all two aspects that we must always take into account. The first is that we have a responsibility as an authority towards the Swedish people and their political representatives. The second is that we must communicate and interact with the financial markets when we implement our monetary policy. I intend to devote the major part of my speech to illustrating some different aspects of the demands made of us. The areas I intend to talk about are transparency, signalling and the future interest rate path. There are no sharp dividing lines between these areas. How we regard the future interest rate path is, for instance, part of our signalling, and the quality of our signalling in turn has significance for how transparent we are. Transparency in itself is part of our role as a public authority. But I nevertheless consider it worth discussing them under separate headings. The role as authority and interaction with the market Let me before I do so say a few more words about our role as public authority and our interaction with the market. I intend to begin with the latter aspect.