Since last winter a “Monetary Policy Update” is published on these occasions, a report which contains a more limited number of forecasts. On the basis of the work described above, the Executive Board establishes its majority view of what is considered a well-balanced monetary policy, giving consideration to inflation and the developments in the real economy during the forecast period. Last Wednesday we published the first Monetary Policy Update of the year. We observed in this report that the financial turmoil has persisted since the monetary policy meeting in February. It has contributed to subduing households’ and companies’ expectations for the future in many countries. At the same time, energy and food prices have risen more than expected. All in all, this means that international economic activity is showing weaker development than the Riksbank had earlier anticipated. Economic activity is still good in Sweden, with high growth in consumption and employment. Exports have also shown good growth. The weaker international economic activity will contribute to a slowdown in the Swedish economy. Rising energy and food prices mean that inflation is high and it is expected to be slightly higher next year than was forecast in February. As before, the Riksbank has to take into account different counteracting factors. On the one hand, inflation is still high, as are inflation expectations. On the other hand, the increasingly weak international economic activity will have an effect on Swedish growth and inflation.
Nor has there been reason to take any measures on the basis of our other task, safeguarding financial stability. Swedish banks are profitable and financially strong, and therefore have good opportunities to manage unexpected negative events. The role of central banks in times of financial turmoil The role of central banks is to safeguard economic stability. We can do this best by focussing on achieving our objectives, that is, price stability and financial stability. However, the recent developments in the financial markets have illustrated the importance of increased cooperation both with other Swedish financial authorities and among countries’ central banks. One important challenge is to manage financial crises which risk spreading across national borders. In December 2007 and March 2008 the Federal Reserve, the Bank of England and the ECB coordinated measures to meet the banks’ needs of short-term financing. The Riksbank expressed its support for this action, although we did not consider it necessary to take corresponding measures in the Swedish financial system. BIS Review 51/2008  7  It is not self-evident what the role of the central bank should be when uncertainty and financial turmoil create problems in certain parts of the financial markets. The fact that central banks take measures to ensure the targeted interest rate is at the right level may appear reasonable. Similarly, we can observe that several central banks see arguments in favour of also influencing interest rates with a slightly longer duration.