As I have already implied, it was not possible to draw any more precise conclusions on an exact figure, but their conclusion was that an inflation target of between 1 and 3 per cent is a good choice. If it is lower than 1 per cent, it can have a negative effect on economic growth. However, if it is above 3 per cent, it is too high for most people to perceive prices as being stable. This is why countries with an inflation target have often chosen a measure of inflation of around 2 per cent, which was of course also the case in Sweden. Must the inflation target be defined in terms of the CPI? One question that often arises in the debate on monetary policy is whether it might not be better to replace the target for the CPI with a target for some other measure of inflation. One suggestion that came up during the autumn, for instance, when energy and food prices rose  2  BIS Review 2/2008  substantially, was that the inflation target should only apply to domestic inflation – that is increases in prices of goods and services produced in Sweden. Energy prices and many food prices are determined on the world market in any case and are outside the reach of the Riksbank. This is true, but the price of, say, rice in our shops is not the same as the world market price of rice.
However, the day that Sweden becomes a member of EMU and we have the euro as currency, the portfolios of the insurance companies will appear rather remarkable if a predominant part of the risks in interest-bearing securities is in five housing loan institutions. Even if housing bonds are as gilt-edged as possible, the insurance companies in this situation will feel a need of increased diversification. The main argument for enabling the Swedish housing companies to issue gilt-edged bonds is naturally that competitors in Europe issue them and they are established in the market. They would be easier to sell to investors, carry a higher liquidity and provide lower interest rates than traditional Swedish housing bonds. This would facilitate financing and hopefully give the consumers lower interest rates. There is undoubtedly something in this line of reasoning. However, the Riksbank has taken a critical attitude to this proposal more for reasons of principle. The housing institutions have every opportunity themselves – via clauses in the bond contracts or even in articles of association – to create the collateral arrangements that they consider appropriate and thus give their bonds the gilt edge that they consider necessary to facilitate financing. If the state assumes the responsibility of legislating about the design of bonds and moreover to check compliance by institutions, this is a regulation that cannot be motivated by concern for the stability of the financial system but rather aims at improving the institution’s profitability by reducing financing costs.