to structural changes of various types. firstly, how should monetary policy handle price effects of deregulations. in that deregulations can lower the general price level, they may occasion a temporary dip in the rate of inflation. secondly, how should monetary policy be formulated in connection with a rising rate of productivity growth? such a development can be taken to indicate that the economy is being exposed to positive supply shocks. while the rate of productivity growth in sweden has not yet moved up to the same extent as in the united states, it is conceivable that, as so often in the past, we will follow the pattern there. however, the probability of this happening is not something i intend to consider today. 1. the rule of action in monetary policy first let me recall the riksbank ’ s rule of action by which monetary policy is usually guided. it states that if the forecast rate of inflation, measured with the consumer price index, 1 – 2 years ahead is above 2 per cent, then normally the repo rate should be raised and vice versa. the reason why we chose this target horizon is that an adjustment of the monetary stance takes time to exert its full impact on inflation and the macro economy in general. although we are also able to influence inflation in the shorter run, doing so is normally inappropriate because it is liable to result in large fluctuations in production and employment. minutes of the executive board meeting on 4 february 1999. the clarification is also presented in heikensten, l. ( 1999 ), the riksbank ’ s inflation target — clarifications and evaluation, quarterly review 1, sveriges riksbank. of course the rule is not applied mechanically. the basic intention is to stabilise inflation around the target and at the same time avoid unduly large fluctuations in production and employment. consequently the riksbank chooses to disregard economic shocks with effects on inflation that can be assumed to be only transitory. moreover, there may be grounds for heeding the expected course of events beyond the regular target horizon. there may be a case for adjusting the repo rate immediately if there are already strong reasons for expecting a marked increase or decrease in inflation directly after the two - year horizon. another point to remember is the riksbank ’ s function of promoting a safe and efficient payment system ; problems in this context may call for interest rate adjustments even though the inflation target is not threatened. such adjustments may be needed both

all along the cash management chain, even outside of the banks. however, there were not merely economic reasons for reviewing the cash management system. the riksbank ’ s own office network, its depots and working methods were considered too costly, for instance having overly large premises and surplus capacity. by allowing the banks to take greater responsibility for cash depots, for instance, the riksbank can focus on its own core activities : maintaining low and stable inflation and promoting a safe and efficient payment system. i sometimes come across the description that the new structure for cash management has resulted in irresponsible privatisation and outsourcing. this is not true. instead, it is a question of achieving the greatest possible economic efficiency, not least by creating a sound incentive structure. those of you who have followed this work know that the path to greater efficiency proved to be more winding than we had initially estimated, and a good deal more challenging. however, we now appear to be well on the way to attaining a more efficient organisation for cash management, together with the banks. with the old organisation, where the riksbank determined where the depots would be located, there were many transports to the riksbank ’ s depots to retrieve and deposit banknotes merely for the purpose of avoiding the cost to the banks of holding banknotes. the new model, which is being launched at present, means that the banks will open their own cash depots and that they will receive interest compensation for the banknotes they hold in these depots. the banks can now establish as many depots as they themselves consider necessary, taking into account, for instance, security and efficiency aspects, and locate these depots in regions they consider suitable. this should lead to a reduction in the number of cash transports to and from the riksbank's offices. so far, three pilot cash depots have been set up to test different systems. these are located in harnosand, malmo and kristianstad. the cooperation between the riksbank, the banks and the cashin - transit companies is now made easier by the fact that two bank concerns have each built their own company – bankernas depa ab and bank service syd ab – which represent their members. in this way, the establishment of cash depots can be speeded up and we can achieve a well - developed structure relatively soon. the riksbank is also investigating the possibility of being able to destroy old and worn bank