Our respective roles and responsibilities, including in a crisis, are set out in a formal Memorandum of Understanding published in the Autumn of 1997 between the Treasury, Bank of England, and FSA. The MOU also established a Tripartite Standing Committee that meets monthly to exchange information and discuss current threats to financial stability. I like to think that, with the departure of responsibility for day-to-day supervision of individual institutions, the Bank has addressed the issue of systemic stability with a new-found clarity of purpose. That said, we know that there is a huge amount of work still to be done on understanding systemic risk. I see a clear contrast here with the monetary policy field. In monetary policy, we are closer to a general consensus about the policy framework and the objectives of monetary policy, even if at any moment of time uncertainty still surrounds our forecast for inflation and the appropriate policy response. Certainly the UK target for monetary stability (the 2.5% symmetrical inflation target) is clear and transparent. In the field of systemic stability and financial crisis, however, our understanding is at a very preliminary stage. We face an array of fundamental questions: how to define systemic stability; how to measure and predict it; what policy weapons we should employ to achieve it; what the costs are if we fail; and how best to resolve instability if it occurs. We have only partial answers to these questions.
But since the high energy prices were expected to gradually fall back entirely we saw them as temporary and decided to leave the repo rate unchanged. When the current regime of inflation targeting was established in the early 1990s it had been preceded by a long period of high, fluctuating inflation in both Sweden and other countries. Many countries around the world experienced a similar shift in regime around this time. Partly as a result of this, international inflation fell sharply during the 1990s, from about 30 per cent to below 4 per cent a year on average.4 The inflation targeting regime and its practical application has been underpinned by the conviction that high, variable inflation is bad for the economy. Now we are living in a world with very weak price increases, particularly for manufactured goods. Is there anything in the current circumstances that could motivate a change in the Riksbank’s thinking? The integration of China's and India's large, fastgrowing economies into the world economy will most likely affect world growth and inflation for a long  inflation targeting – theory and practice", Sveriges Riksbank Quarterly Review 4, 13-42, for a similar discussion that is linked to the monetary policy framework in Sweden. 3  Read more about this in, for example, Palmqvist S. & Strömberg L. (2004), "Households’ inflation opinions – a tale of two surveys" in Sveriges Riksbank Economic Review 4, 24-43. 4  See Rogoff, K. (2003), "Disinflation: An Unsung Benefit of Globalization?" BIS Review 10/2005  5  time.