As the Swedish krona is judged to be undervalued at present, we also assume that the exchange rate follows a path that represents a gradual appreciation. The technical assumption of an unchanged repo rate and the presumed path for the exchange rate are then incorporated in the main scenario for inflation. As inflation’s future course is not a straightforward matter, we also include assessments of uncertainties. The overall picture of inflation prospects amounts in practice to an estimate of probabilities. The assessments in the main scenario imply favourable economic fundamentals: a growth rate between 2.5 and 3 per cent between 1998 and 2000, low inflation and a rising government surplus. Domestic demand in the main scenario is expected to generate a relatively limited increase in inflation’s underlying rate, from 1.1 per cent at present to 1.6 per cent at the end of next year and 2 per cent in the autumn of 2000. The 12-month change in CPI inflation is expected to be somewhat below the inflation target in one to two years time but the figure at the end of the period is judged to be approximately 2 per cent. All this means that at the end of the period under review, inflation is relatively well in line with the Riksbank’s target. It should be underscored, however, that the assessment of inflation prospects is more difficult than usual on account of the financial turbulence.
The changes in banking in particular had to be paced out, to ensure that confidence in our local banks and the system as a whole was not shaken, and to give the banks time to regear and to grow new capabilities. 7. The liberalisation of the banking industry to date has achieved its key objectives. Singapore is one of the leading financial centres in Asia, and plays an enhanced role in financing the region’s growth. We have also retained a core of strong and increasingly innovative local banks, as anchors of the banking system. Critically, trust in our local banks and the MAS as regulator remains high. We have avoided the sharp decline in trust seen in many financial centres. 8. MAS has consistently held the view that banking systems need strong anchor players, competitive and well-supervised, who can take the long view and have interests closely aligned with both the growth and stability of the system as a whole. The experience of the global financial crisis and its aftermath vindicated our view. A common feature of jurisdictions with systemically important financial centres that held up well through the crisis – notably Canada, Singapore, Hong Kong and Australia - was the presence of a handful of strong anchor banks in each of their systems. 9. We have continued to liberalise the system, a decade after the first major steps that introduced QFBs and enhanced the space for wholesale banks. In 2012, we took steps to encourage foreign banks to deepen their roots in Singapore.