The HSBC Bank with its global connections could now facilitate financial transactions in the North with all parts of the world, while HSBC’s presence in the Jaffna Peninsula from today onwards, would convey an important signal to the world that tangible progress is being made in post conflict Sri Lanka. I wish Mr Nick A Nicolaou, his team in Sri Lanka the HSBC and all their customers, especially the ones in this area, all success. Thank you. BIS Review 16/2010  3  Lars E O Svensson: Inflation targeting after the financial crisis Speech by Prof Lars E O Svensson, Deputy Governor of the Sveriges Riksbank, at the International Research Conference “Challenges to Central Banking in the Context of Financial Crisis”, Mumbai, 12 February 2010. *  *  *  I thank Charles Bean, Claes Berg, Alan Blinder, Stephen Cecchetti, Chuck Freedman, Charles Goodhart, Lars Nyberg, Irma Rosenberg, Hyun Shin, Frank Smets and Staffan Viotti for discussions of these issues. The views expressed here are my own and not necessarily those of other members of the Riksbank’s executive board or of the Riksbank’s staff. Hanna Armelius and Hans Dellmo of the Riksbank’s staff contributed to this speech. As the world economy begins to recover from the financial crisis and the resulting deep recession of the global economy, there is a lively debate about what caused the crisis and how the risks of future crises can be reduced.

14  Nyberg (2010) provides more discussion of macroprudential regulation and regulation reform. BIS Review 16/2010  7  significant social costs. I find it helpful to conceptually distinguish financial-stability policy from monetary policy. Different economic policies and policy areas, such as fiscal policy, labor market policy, structural policies to improve competition, etc., can be distinguished according to their objectives, the policy instruments that are suitable for achieving the objectives, and the authority or authorities controlling the instruments and responsible for achieving the objectives. Monetary policy in the form of flexible inflation targeting has the objective of stabilizing both inflation around the inflation target and resource utilization around a normal level. The suitable instruments are under normal circumstances the policy rate and communication, including possibly a published policy-rate path and a forecast of inflation and the real economy. In times of crisis, as we have seen during the current crisis, other more unconventional instruments can be used, such as fixed-rate lending at longer maturities, asset purchases and foreign-exchange intervention to prevent currency appreciation. The authority responsible for monetary policy is typically the central bank. Financial-stability policy has the objective of maintaining or promoting financial stability. The available instruments are under normal circumstances supervision, regulation and financialstability reports with analyses and leading indicators that may provide early warnings of stability threats. In times of crisis, there are instruments such as lending of last resort, variable-rate lending at longer maturities, special resolution regimes for financial firms in trouble, government capital injections and so forth.