These remain firmly anchored around 2 per cent. Much of my reasoning here on the Riksbank’s monetary policy strategy is described in a booklet entitled “Monetary policy in Sweden”, which we published a few months ago 1 . The most important aim of this booklet is to explain how the Riksbank, when setting its interest rate, has scope to take into consideration developments in both inflation and in the real economy. One step in this direction was taken already back in 1999 when the clarification of monetary policy was published by the Executive Board for the purpose of explaining that the Riksbank conducted flexible inflation targeting 2 . In the period since 1999 we have learned even more about how flexible inflation targeting is conducted. There has also been considerable progress in the academic research on this subject. New insights led to a decision to issue a new document on monetary policy strategy. This is essentially a question of developments and changes in the method of describing and communicating inflation targeting policy rather than in the basic strategy itself. Inflation in focus, not the interest rate Let me conclude this section of my speech with a few words on a concept that has been used in the discussions on monetary policy recently, namely that the Riksbank has begun a “normalisation” of the repo rate.
It is now widely accepted that these are determined by factors that are not directly affected by monetary policy, such as the rate of technological advances and the efficient functioning of various markets. In general terms, one can say that the policy conducted by the Riksbank is aimed partly at limiting the inevitable deviations from the inflation target and partly at ensuring that the real economy does not fluctuate excessively. The objective of monetary policy is price stability, but the Riksbank also considers real economy considerations to be important. This is characteristic of what is known as flexible inflation targeting, which as far as I know, is conducted by all central banks that have inflation targets. Monetary policy affects the economy with a certain time lag. Monetary policy decisions must therefore be based on forecasts of future inflation. Normally, monetary policy is aimed at achieving the inflation target within two years to avoid the deviations from target from being too large and too protracted. This two-year horizon can be regarded as a restriction that the Riksbank has placed upon itself as a means of upholding confidence in the inflation target. At the same time, it provides an opportunity to show consideration for the real economy.