But it is right to keep in mind that, if we drag our heels and delay furling our sails, it is not impossible that it will take very little in the way of rough seas to tumble us into something that could accurately be called a recession. And in that case, we would have only ourselves to blame. We must not let such a thing happen. Ladies and Gentlemen: We welcome the interest and amicability that you show in attending this meeting. In older times, it was considered appropriate for central banks to keep their distance, to be silent and even somewhat inscrutable, for that standoffishness was thought conducive to creating the image that the persons behind the banks had quasi-supernatural powers, that they possessed information available to no one else and could avail themselves of preternatural tricks and stratagems to address a wide variety of problems. But times have changed – and that is for the better. Central banks must not let down their guard. Their policies and aims should be clear, and their actions should be consistent with those policies and aims. The independence of the Central Bank of Iceland remains a cornerstone of its operations, and any responsible person should protect and fortify that independence. This does not mean that the Central Bank is above all criticism, of course. Actually, there are solid reasons for claiming that the independence enjoyed by the Bank justifies its being subjected to more incisive criticism than it should otherwise tolerate.
But at the same time as these changes were reported, the Bank announced the Board of Governors’ decision to raise the policy interest rate by 1.25 percentage points – to 15% – the largest single increase to date. That decision was the tangible manifestation of the  4  BIS Review 36/2008  serious message that the Bank considered it appropriate and necessary to communicate under the current conditions. The Board of Governors supported this decision by showing that the four-month-old inflation forecasts assuming an unchanged policy rate until the latter half of 2008 were not delivering the intended results. Inflation was higher than forecasts had projected, and inflation expectations were rising as well. In the same manner, demand was greater despite the more difficult operating environment faced by the banking system and the announcement that the credit supply was on the wane. The króna also depreciated more than was assumed in the forecasts in the November issue of Monetary Bulletin. That forecast assumed that such a development would be met with a policy rate hike, and though such forecasts are in no way binding for the Board of Governors, the Board’s message can be interpreted as implying a similar message. It pointed out that the real exchange rate of the króna was close to the lowest it has been in several decades. Such a low real exchange rate has never persisted for any length of time.