decision framework used by the monetary authority and / or its assessment of current and prospective economic, monetary and financial developments. i would argue that some ‘ teething problems ’ in communication with financial markets are inevitable for a new institution. the ecb is still learning about how best to communicate its message to the markets. the financial markets are still learning – from our track record – about the application of the ecb ’ s monetary policy strategy. i will now turn my attention to the evidence on the extent to which ecb monetary policy has been both credible and predictable in the eyes of the financial markets. a key indicator of credibility of ecb monetary policy comes from expectations of inflation implied by the differences between the returns on real and nominal bonds. in this regard, the break - even inflation rate french index linked bonds has been consistently been in line with the ecb ’ s quantitative definition of price stability, indicating a persistently high degree of credibility for ecb monetary policy. moving to the question of predictability it seems fair to say that policy moves have generally been anticipated by the money markets. this can be seen if one looks at the implied short term interest rates and the subsequent official interest rate moves which seem to exhibit a high degree correspondence. according to work undertaken by gaspar, perez - quiros & sicilia ( 2001 ) who examine the behaviour of overnight interest rates, the markets do not appear to make systematic errors with respect to monetary policy announcements. furthermore, developments in the volatility implied by options on 3 - month euribor futures indicate that the degree of uncertainty among investors with respect to future developments in short - term interest rates generally declines following an interest rate change by the ecb. indeed, the extent of this uncertainty around the time of interest rate changes seems to have diminished in magnitude over time. this is consistent with the notion that investors have become more confident in their forecasts of future short - term interest rate developments prior to ecb monetary policy announcements. nevertheless, one could not claim that on every single occasion policy has always been well anticipated by the money markets. this can be seen in the fact that on two occasions this year – on the 21st and 22nd of february and the 12th and 17th of april – there was underbidding in the eurosystem ’ s main refinancing operations. it appears that most market participants were expecting a reduction in interest rates and therefore preferred not to participate in the auctions. when these expectations were not fulfilled there was a shortage of

rates. as the riksbank is now starting to publish average interest rates and indices for swestr, market participants can therefore start using swestr instead of stibor also at longer maturities. this is, of course, an adjustment for both lenders and borrowers, but the obstacles are hardly insurmountable. in other countries, for example, various adjustments have been introduced which mean that interest payment is delayed for a couple of days. in this way, market participants can see what the final interest was and make the payment a few days later. market participants need to work together for an orderly transition it is thus clear that there are issues that need to be addressed before a transition to swestr can be completed. since reference rates are used by many participants and in a large number of contracts, it is important that this is done in an orderly manner. it will be a development project running over several years. the riksbank would like to call on all those concerned to start the transition now. sweden should not be left behind in the global effort to start using transactionbased reference rates. it is therefore positive that various sector forums have begun to discuss issues related to swestr. the riksbank will continue to support the transition. we will have an ongoing dialogue with the market and will also shortly be sending out a survey to gather the views of different participants on issues related to the transition. however, it is important to emphasise that the role of the riksbank is limited to, through swestr, providing the conditions for a new form of reference rate and contributing to analysis. it is the market participants who are responsible for the transition taking place. they will therefore have to drive forward the issue of a transition in order to ensure that a reference rate with a high degree of confidence also dominates in the swedish financial market. 7 of course, the riksbank expects financial market intermediaries to take a great deal of responsibility in this process, but you too – who are to a large extent the end - customers of such participants – have a very important role to play. if you show your interest, it will facilitate a transition to a more transparent reference rate. ask your bank contacts how they plan to introduce swestr into their operations. request loans and other products that use swestr as an interest rate. once the products are in place, start using them and thus help to create liquidity in the market. in summary : sw