In response to this, macroprudential policy is now emerging as a new policy area. Finally, the financial crisis has shown that monetary policy and financial stability policy must be coordinated to an even greater extent than before. There is thus a great international consensus that the roles and responsibilities of the central banks and other authorities are in need of review. Today, I intend to discuss how I view the future role of the Riksbank. I will focus on the interaction between monetary policy and financial stability policy and the new policy area macroprudential policy. The central bank’s tasks and objectives may come into conflict with each other In most countries, the central bank has a responsibility for price stability, while at the same time supporting a sustainable economic development. In practice, this involves stabilising inflation and some measure of resource utilisation. In addition, the central banks usually have a responsibility for financial stability. This means that the central banks often face various conflicting objectives or trade-offs. For instance, it can be a case of striking a balance between achieving the inflation target and a sustainable level of resource utilisation when inflation and resource utilisation are moving in different directions. When productivity increases, inflation usually falls while resource utilisation rises. So, in the short term, it is not possible to simultaneously stabilise inflation around its target, and resource utilisation around its sustainable or long-term level. It can also be a trade-off between a stable financial system and a sustainable level of resource utilisation.

BIS central bankers’ speeches  11  The future role of the central bank is taking shape Allow me to conclude by highlighting certain aspects that are important to central banks in terms of creating a framework that continues to safeguard stable prices while at the same time being consistent with sustainable development in the financial system. First, monetary policy should continue to be conducted in the framework of flexible inflation target policy, with price stability as the overriding target. However, the financial crisis has brought to light the importance of monetary policy taking greater account of financial stability. It can be a case of extending the time horizon of the monetary policy analysis, and focusing on price stability over a longer period than just the next few years. Second, financial stability policy requires a new focus, and macroprudential policy is emerging as a new policy area. Macroprudential tools provide better opportunities to strengthen the resilience of banks and other financial institutions to various shocks. They also provide better possibilities of influencing bank lending rates and thus macroprudential policy becomes closely interconnected with monetary policy. Overall, this enables us to work to a greater extent towards achieving a sustainable development in both lending and economic development. Having more tools also facilitates managing the conflicting objectives encountered by central banks, even though there will always be difficult trade-offs. So, there is good reason to give central banks an influential role in macroprudential policy.