has established a firm basis for implementing monetary policy and contributed towards price stability. the central bank has also announced its decision to reduce its policy rates by 0. 5 percentage points. this is a reflection of the bank's assessment that the economy will begin to cool this year and that the targets now set for inflation do not require interest rates to be as high as they have been recently. interest rates will nonetheless remain high and a tight monetary stance is still being maintained. all of these are decisions, which hopefully will consolidate the position of iceland's financial markets, will contribute towards price stability and bolster the foundations for improved living standards. i would like to end by thanking the government authorities and financial institutions for their pleasant cooperation.

of inflation for the income and financial position of businesses and households ; the repercussions are familiar enough. it is often said, even by supposedly responsible people, that the tools used by central banks all over the world to combat inflation will not work here in iceland, not least because of the way globalisation treats small currencies like the krona, and because of how many investors, through the shelter afforded by globalisation, have the means to avoid the central bank ’ s thumbscrews. the cannons on iceland ’ s coast guard cruisers were no weapons of mass destruction, and the difference in size between thor and aegir, on the one hand, and the british navy, on the other, was horrific, but we managed nonetheless. of course, a reference to the cod wars is merely a metaphorical one, and i use it more or less in jest, as it doesn ’ t fully apply to the current situation. but the comparison between the central bank of iceland ’ s tools and those of other central banks, which enjoy the relative security of a large currency, is worth examining. in the past few months, though, large currencies have not been protected from tremors, shocks, and even wide fluctuation. for example, the euro has appreciated by more than 70 % from its weakest point against the us dollar, an enormous change in a relatively short period of time. the icelandic krona has not been nearly so volatile despite all of the shocks it has had to tolerate. a volatile krona in a turbulent season tends to indicate that the krona is effective as a currency, and not the reverse. when interest rates and capital flow allow it, the krona appreciates, whether people like it or not. when there is a credibility loss in the market, either in iceland or abroad, the krona will depreciate suddenly and sharply, and when there are tremors and rumblings in the economy, domestic or foreign, the exchange rate tends to resemble a meteorological office seismograph. in short, the krona functions just like any other currency, and if it did not react in this way to these conditions, we should complain loudly indeed. globalisation has made a massive impact on all markets and all currencies, and there is little doubt that, until now, it has lightened the load borne by central banks and central bankers in the battle against inflation. this could well change in the future, so that