at present despite the economic slowdown. together with the cautious recovery, this suggests that the path of inflation in the coming years will be relatively stable. in the main scenario we count on underlying inflation ( und1x ) being 1. 8 per cent one year ahead and 1. 9 per cent after two years. as always, the spectrum of risks around this main scenario is also relevant for the formation of monetary policy. the financial market developments have, as i mentioned, heightened the uncertainty about the extent to which the stock market fall and poor earnings prospects are tending to subdue consumption and investment abroad and in sweden. it is conceivable that the fall to date will dampen consumption more than the main scenario assumes. if the international stock markets were to continue their negative development, or if the effects of the fall become more extensive, the outcome for the swedish economy could be considerably less favourable. such a situation would also entail lower inflation. this downside risk is only partly balanced by a domestic upside risk to do with inflationary pressure and wage formation in sweden. all in all, the balance of risks for inflation is accordingly on the downside. the riksbank ’ s overall assessment today is that with the risk spectrum taken into account, inflation one to two years ahead will be approximately in line with the target, albeit somewhat on the low side. the most probable outcome in the years ahead continues to be that economic activity becomes stronger. together with the difficulties in assessing the situation - not least on account of the fluctuations in the financial markets - this has led the riksbank to opt at present for leaving the repo rate unchanged. but the financial market developments and their economic effects warrant close attention. the executive board therefore decided to hold an extraordinary monetary policy meeting at 1 p. m. on 14 november in order to make a renewed judgement.

lars nyberg : hedge funds and the recent financial turmoil speech by mr lars nyberg, deputy governor of the sveriges riksbank, at the nordic hedge fund investment forum, stockholm, 28 january 2008. * * * hedge funds have come to play an increasingly important role in the financial system. in the past decade the assets managed have quadrupled and now stand at around usd 2 000 billion ; growth of between 25 and 30 per cent per year. 1 but it is not just the fact that the hedge funds have grown in number and size that makes them important. they also have different trade strategies and more liberal investment rules than many other types of investor. this makes them important players on several of the world ’ s financial markets. many have said ( and some have perhaps hoped ) that hedge funds would cause the next financial crisis. as we know, the past autumn saw a number of unpleasant surprises in the financial markets. in this context i believe it may be of interest to note that the hedge funds have not contributed to amplifying the problems in the market. to date, if anything they have had the reverse effect, that is, their actions have generally had a stabilising effect in the markets. 2 at the same time, many hedge funds, like many other financial market agents, can surely learn some lessons from recent events. i will reflect on this today. this also brings me to the current animated debate on the regulation of hedge funds. my main message is that recent events support rather than oppose my opinion – namely that further regulation is not necessary as long as the major banks manage their exposures to the hedge funds correctly. i shall shortly discuss the role the hedge funds have played – and not played, during last autumn ’ s unrest in the financial markets. however, let me first say a few words as to why hedge funds as a group are important to financial stability. hedge funds spread risk and improve pricing hedge funds are, as we know, a broad concept and one that covers managers with a number of different working methods and strategies. however, a common denominator for most hedge funds is that they have as a goal an absolute return rather than a relative return and have far more liberal investment rules than other funds. also they often have highly leveraged portfolios with the aim of increasing the return. for those who reflect on the way in which financial stability develops, and all central banks do so, it is, of course, of particular interest to see what