They take independent decisions that they must account for publicly. This arrangement ensures both transparency and distribution of power. In addition, three Deputy Governors have taken office – in the fields of monetary policy, financial stability, and financial supervision – in order to ensure even more fully that the authority for decisions on application of policy instruments is distributed effectively. There has been complete consensus among us four Governors, as well as the other members of the Bank’s three committee, in our support of the measures taken in response to the COVID19 threat, and we have met at very short notice to discuss and approve measures when necessary. The Central Bank of Iceland stands together as a cohesive and united whole in the tasks that lie ahead. Unlike many other Western central banks, the Central Bank of Iceland has considerable scope for policy action, as interest rates here are higher than in many other economies and the capital requirements made of the banks are much more stringent than they are elsewhere. And we have used the scope this has provided us. In the past two weeks, the Bank has lowered interest rates by a full percentage point. Its key rate is now 1.75%, and we can lower it still further. We have lowered the banks’ liquidity reserve requirements, easing their liquidity position by 40 b.kr. We are ready to inject more liquidity into the system if the need arises.
•  The risks to financial stability are nowhere near pre-Crisis levels, but they bear close watching. We must not repeat the mistakes of the past. 11 But there is as yet no consensus on how to secure financial stability and, in particular, what role, if any should be played by monetary policy. 12  There are three broad approaches to these questions. •  The first is to stick to the status quo. Monetary policy remains focused on price stability and no recourse is made to macroprudential policy beyond the use of capital buffers to pre-empt insolvencies. •  In the second approach, monetary policy explicitly takes account of financial stability in addition to price stability. •  Under the third approach, monetary policy remains focused on price stability, while financial stability is secured with the help of macroprudential policy. 13 I will keep my remarks on the first approach brief as it is well-known and is still the dominant practice in most central banks today, especially in the advanced economies. Under this inflation targeting approach, monetary policy will not try to respond to credit cycles or asset bubbles unless they have a demonstrable impact on inflation outcomes. •  As Lars Svensson puts it, flexible inflation targeting “remains the best-practice monetary policy before, during, and after the financial crisis”. •  John Taylor, who will address us this evening, provides a more rule-based characterisation of this approach through the Taylor rule.