sign that we are on our way into a higher long - term growth track. the approach of economic policy has then been successful. support and understanding also seems to have been attained for the price stability target taking precedence over other ambitions and demands. by giving central banks independent responsibility for the price stability target, an attempt has been made to avoid suspicions being created that the price stability target would be set aside for short - term employment considerations. in the long - term, a demand - stimulating economic policy would only be expressed in inflation when full utilisation of resources is reached. for central banks that, after a long period with a poor inflation record, are to establish credibility for price stability, independence can facilitate this transition. when credibility and support for price stability has been achieved, there is less risk of monetary policy coming into conflict with short - term employment objectives. i would first like to briefly describe the basis of the monetary policy decisions made by the riksbank. simple decision - making rule as a guide the new riksbank act has now been in force for almost two years. this act stipulates that the objective of the riksbank is to maintain price stability and to safeguard a reliable and efficient payment system. when the executive board met for the first time, it clarified the approach to be adopted in monetary policy. it was already the case that inflation measured by cpi was to amount to 2 % with a tolerance interval of plus / minus 1 percentage point. the riksbank had also previously announced that the target horizon would be 1 - 2 years in normal cases. we clarified that we can decide to disregard certain factors affecting prices which are not related to resource use in the economy and which only have a temporary effect on inflation. however, the prerequisite is that the effect on prices is temporary and should thus not affect inflation expectations. subsequently, we have also said that there may be reasons for taking into account developments before and after the target horizon. when we depart from the main rule, we have undertaken to say that we are doing so and give reasons for why we are departing from the rule. the monetary policy decisions are based on forward - looking assessments of inflation measured as cpi. this assessment is based on the interest rate being unchanged during the forecast period. an important factor for determining inflation is the degree of resource use in the economy, the output gap. the thinking underlying this is that inflation will be stabilised if the increase in output is in accord with the long - term growth track

greatly increased with major negative effects on growth. if cpi is affected by factors that are unrelated to the demand situation, a monetary policy that strictly complies with the main rule can also lead to unnecessary variations in output and employment. in order to counteract, for instance, that certain changes in charges lead to cpi exceeding the target, we would be obliged to carry out a monetary policy that would either lead to the use of resources in the economy being too low or too high. provided that inflationary expectations are not affected, we can, to avoid unnecessary fluctuations in output, therefore decide in certain cases to conduct a monetary policy that leads to the cpi target not being achieved in a 1 - 2 year time perspective. for instance, we have normally decided to disregard certain factors that affect cpi by focusing monetary policy on und1x - a price measure that disregards housing costs and indirect taxes and fees. concern for macroeconomic stability can in certain cases also justify our extending or shortening the time horizon. it is, for instance, conceivable that it may be justified to extend the target horizon if we make the assessment that there is a risk of a substantial increase in inflation immediately after the normal horizon. if, in such a situation, we wait to increase the interest rate and thus comply with the main rule, we could subsequently end up in a situation where we were forced to increase the interest rate very sharply to avoid inflation expectations accelerating and persisting when inflation rises rapidly. however, a large interest rate increase would have negative effects for output and employment in the short term. to avoid ending up in a such a dilemma in future, we can decide to take into account inflation developments after the target horizon. from what i have said until now, it is evident that our monetary policy decisions are normally based on the main rule that says that we should aim at keeping cpi inflation at two per cent 1 - 2 years in the future. however, on every occasion when decisions are made, we must consider how to relate to the guidance provided by this simple decision - making rule. this assessment is based on the extent to which the main rule leads to unacceptable macroeconomic costs in the form of fluctuations in employment and output. however, departures from the rule must not damage credibility in the inflation target or lead to inflation expectations being affected. as we have gained experience and increased our knowledge, we have clarified how we intend to apply our decision - making rule. we will in all probability, continue to obtain new