The construction of the regime and its underlying ideas have been discussed over these years, not least in these Monetary Policy Forums. The present monetary policy regime provides good conditions for long-term price stability and thereby for an economy that functions better. It also contributes to an appropriate short-run balance between acting as a clear anchor for price stability and promoting real economic stabilisation. Basically, it is a matter of minimising both the fluctuations around the price stability target and those around the Swedish economy’s growth trend. Cyclical fluctuations cannot be eliminated but we can hope that sequences of intense boom-and-bust are a thing of the past. Low inflation and good growth go hand in hand When inflation converges internationally and long-term inflation expectations are permanently lowered to the level of the target for price stability, the core of the inflation process lies in the relationship between prevailing demand and the sustainable level of output. If resource utilisation is so high that it becomes strained, inflation will tend to rise. Conversely, when resource utilisation is low, inflation tends to fall. To a large extent it is the interaction of demand and supply that determines whether inflation is rising, falling or constant in relation to the 2 per cent target. Monetary policy is capable of exerting a direct effect - through the repo rate - on only one of these two sides of the economy, namely demand. The supply side is essentially influenced by structural factors that the Riksbank cannot control directly.

2  BIS central bankers’ speeches  The so-far economic activity performance and projections for 2013 support the outlook for positive economic growth close to the previous year’s figure. Foreign demand is expected to contribute positively to Albania’s economic growth, but this contribution is expected to be lower due to unfavourable developments in trading partner countries and relatively low diversification of Albanian exports. Private demand is also expected to be positive, taking advantage of monetary stimulus growth and domestic savings utilization. Finally, the public sector is also expected to provide a positive stimulus. Despite the positive growth, the economic activity in Albania is expected to remain below its potential during the current year and the demand-side inflationary pressures are expected to remain low during this time horizon. The Bank of Albania deems that with a 90% probability, the annual inflation as to four quarters ahead is forecasted to fluctuate within the 0.8 – 3.8% band. Low annual inflation rates and forecast for their continuation over the monetary policy time horizon dictate the maintaining and strengthening of the stimulating monetary policy over the next four quarters. * * * Considering the information summarised above, the Supervisory Council deems that consumer price pressures in Albania remain weak along the monetary policy time horizon and have shifted downward during the last months. Concluding, the Supervisory Council decided to lower the key interest rate by 0.25 percentage points, to 3.75%. This decision aims to create appropriate monetary conditions to meet the medium-term inflation target.