e b. ’ 9 ’ 9 7 - 1 - 1 s ource s : s ta tistics s we de n a n d p rospe ra r e se a rch diagram 3 com p on en ts of th e cpi percen tage 12 - m on th ch an ge i m p o r t ( 24 % ) d o m e s t i c ( 67 67 % % ) - 3 - 3 - 6 - 6 ho u s e m o r tg ag e i n t e r e s t c o s t ( 9 % ) - 9 - 9 - 12 - 12 - 15 - 15 s o u r c es : s tati s ti c s s w ede n a n d th e r i k s ba n k different indicators of underlying inflation also show a declining rate of increase, though the picture measured in this way is not quite as dramatic ( diagram 3 ). excluding house mortgage interest costs, the current rate of inflation is about 1 percentage point higher than indicated by the cpi. it seems reasonable to conclude, however, that an evaluation of the riksbank ’ s policy for inflation must recognise that a part of the changes in the rate of inflation stems from transitory effects occasioned by the riksbank ’ s own measures. 3. the current assessment the march inflation report i should now like to turn to the outlook for inflation in the coming years. in order to provide as open and clear a picture as possible of how the riksbank analyses the future prospect for inflation and approaches the construction of monetary policy, we present reports on this four times a year. in the latest report, published this march, it was considered that the gdp growth rates for 1997 and 1978 would be 2 and 3 per cent, respectively. it was also foreseen that no appreciable capacity restrictions should arise in these years. with an unchanged monetary stance and given that households and firms continue to count on inflation remaining low, underlying domestic inflation ( the cpi change excluding transitory effects on inflation ) one to two years ahead was judged to be between 1. 5 and 2 per cent. in that the transitory effects will be dropping out of the 12 - month change figures, however, registered inflation will move up by degrees in 1997 and 1998. in march we counted on the annual rate of inflation in 1997 being around 0. 5 per cent, which would still be clearly below the inflation target. we

should have electronic trading. all business is settles, whether this is done through a traditional market - maker system or by electronic trading. those buying fixed income instruments want to be sure of receiving what they have bought an those selling want to receive the money they have been promised, regardless of the trading form. on the other hand, it is clear that it would be desirable to take the opportunity to design a new system that would provide a good means of handling settlements. this is particularly important as the increased volumes hoped for, which are the whole point of the new system, will create increased risks in terms of settlement. today settlement on the fixed income market is done by means of net settlement in vpc. this works well in many ways and the routines are perceived as manageable by the market players, as far as i understand it. however, the system is nevertheless obsolete and involves risks. if one of the parties involved failed to meet its payments during the daily settlement, for instance, if one party was forced to make a suspension of payments or simply lacked sufficient liquidity, the situation could become troublesome. the existing routines can be called into question. one can imagine situations where settlement is not achieved, which could have consequences for the liquidity of the banking system. from the point of view of financial stability, this is an unsatisfactory situation. the requirement normally made of a settlement system is that settlement can be achieved even if the largest party should fail. this requirement is not met in sweden and the security in the swedish payment system would not be regarded as satisfactory in an international evaluation. vpc's owners, i. e. the banks, undertook to remedy this problem when they purchased vpc from the government. that was in spring 1999, and as far as i know nothing has yet been done. common to all methods, unfortunately, is that they cost a lot of money to implement and this money has to come from the market players in some way. however, it should be in the interests of the market players that something is done. in the long run, it is unlikely that the banks'international counterparties will accept that settlement in sweden is done through systems that are inferior to those in the rest of europe, and with questionable security. it is reasonable that we should live up to the international standards now being established. it would be a defeat for the market if the government had to enforce solutions in this field through legislation. starting point for a renaissance these brief comments show that