It is our task to ensure that the temporary effects remain temporary and do not become entrenched. Do we only focus on inflation? Another question that has arisen in the recent debate is to what extent the Riksbank should take production and employment into consideration. Let me first say that when it comes to the relation between low and stable inflation and good growth, one does not exclude the other. The actual purpose of the inflation target is to provide the conditions for good economic growth that is sustainable in the long term. Furthermore, the Riksbank shall also give some consideration to developments in production and employment in the individual interest rate decisions, as long as it appears possible to attain the inflation target. Monetary policy is flexible. We are no “inflation nutters” as my British colleague Mervyn King has put it. The Riksbank cannot stabilise inflation at 2 per cent all of the time. Sudden increases in oil, food, clothing or any other kind of prices can push up inflation. Our interest rate policy is then designed so that inflation can be expected to be back on target within a couple of years, not next week. The fact that it may take some time before inflation is back at 2 per cent provides some scope to take into account production and employment. The Riksbank thus has some scope to give consideration to developments in economic activity. This is something we actually do.
It's hard now to imagine that we had no formal banking supervision at all in this country until about twenty years ago. But for the most part such regulation today does not tell us what we can and cannot do, rather it sets the criteria that we must meet, and the behavioural standards we are expected to observe, in doing whatever it is that we choose to do. It leaves much more room for both consumer and producer choice, including producers from overseas, and much more room, and more incentive, therefore for competition and innovation. And, in that less prescriptive, more permissive, environment, the new technologies have brought about massive changes in traded instruments, in the way in which markets operate and are organised and in payments, settlements and delivery arrangements and so on, which, while not without occasional problems, have overwhelmingly on balance brought massive benefits in terms of market efficiency. In reflecting on this whole process in the UK, there are a number of characteristics of the general approach that I think have been important. The first relates to the extent to which it was market-driven. No attempt was made as far as I am aware - certainly not by the Bank - to tell market players what they should do individually or in organising themselves collectively.