The reform of the financial legislation and its framework in line with that in other European states has facilitated the export of financial services by Icelandic financial institutions and the establishment of operations abroad. You will hear more about this process from the next speaker, Director Sigurdur Einarsson. Foreign direct investment regulations are now liberal with the most important exception that such investment is not permitted in the fishing sector. Foreign direct investment is most noticeable in power intensive industries, such as the production of aluminium, which is based on Iceland’s abundance of renewable energy resources. Recent changes in corporate taxation in Iceland, lowering them to among the lowest to be found, serve to attract foreign business to Iceland and encourage Icelandic companies with international operations to favour Iceland as the base of their operations. Director Garðar Ingvarsson will probably give you more detail on this later this afternoon. Direct investment by Icelandic companies abroad has risen rapidly in recent years and in a variety of areas, such as fisheries and fish processing, pharmaceuticals, retail commerce and as mentioned earlier, financial services. These developments also benefit the Icelandic economy in the long run as they integrate Iceland further into the global economy, allow Iceland to draw more easily on the experience of others and bring in dividends. During the 20th century, Iceland tried almost every type of exchange rate policy, from a monetary union with Denmark to a managed float.

The vast body of research conducted in the area of monetary policy has documented the real risk of high and persistent inflation and inflationary expectations. It also shows that without a strong and committed monetary policy response, inflation expectations become self-fulfilling, leading to increased uncertainty, disrupted price signals, inefficient distribution of resources, reduction of economic growth and increased long term volatility. Our experience, research and current analysis, show that under current conditions, the only responsible policy for the central bank is to respond by increasing the policy rate and reinforcing its commitment to price stability. This course of action will create the necessary monetary conditions to control inflation and inflation expectations, and will eventually help return inflation to the target within a reasonable time horizon. Our commitment to price stability aims to preserve the purchasing power of the family incomes and the value of household savings; preserve financial stability and create optimal credit conditions; as well as help the private sector to make reliable business and sustainable investment plans. Most importantly, our projections, which benefit from the same models and research analysis, suggest that the current round of policy rate hikes will not be recessionary. The Albanian economy will continue to grow in the medium-term horizon. In this respect, the recent increase of policy rate which aims to preserve price stability and anchor inflation expectations, is simultaneously a measure for protecting the economy;  2/4  BIS - Central bankers' speeches  the private sector; and the households, from the negative effects of inflation.