The repo rate was cut to almost zero and the Riksbank announced its intention to let the repo rate remain at this level for a relatively long period of time. The turbulence on the financial markets also meant that monetary policy had less of an impact than normal. The Riksbank responded to this by complementing monetary policy with extensive lending to the banks. In this way, monetary policy has helped to dampen the fall in production and employment. It has also helped to keep inflation in line with the target in the longer term. This is what I intend to talk about today. First, however, I would like to say a few words about some of the principles that are important when assessing monetary policy. What should we consider when we assess monetary policy? When can one say that the monetary policy conducted over the past year has been good? The answer to this question naturally depends on what the target for monetary policy is. The Riksbank has an explicit inflation target according to which the annual change in the consumer price index (CPI) should be 2 per cent. As monetary policy acts with a time lag, it should be based on forecasts. The Riksbank’s forecasts are based on the assumption that the repo rate – the Riksbank’s policy rate – will develop in such a way that monetary policy can be regarded as well-balanced.
In this regard, a stress testing system, introduced in 2007, already contributes to better assessing banks’ risk management and evaluating adequacy of capital assets to potential risks. In view of the large number of foreign banks presently operating in Algeria, continued efforts are being made to develop bilateral cooperation on their supervision. In conclusion, prudent management of resources and continued strengthening of the financial and banking system stability allow Algeria to consider its medium term economic objectives with a relative confidence. However, the deepening of the international financial crisis and its drastic spillover effects on the world economy is already affecting the country through a number of channels, notably: •  a reduction in its savings capacity. The sharp decline in oil prices is drastically reducing hydrocarbon export receipts and consequently government’s savings capacity. A prolonged weakness of oil prices would inevitably erode the financial wealth accumulated in the stabilization fund with a correlative reduction in international reserves;  •  a reduction in the yields on the investment of international reserves, as a consequence of low interest rates in international markets. 2  BIS Review 21/2009