public. the fomc ’ s recent moves to publish guidelines on its longerrun goals and policy strategy and the policy assumptions that underlie fomc projections are great strides toward this goal. however, more can be done. in particular, i believe the fomc should continue to work toward increasing the public understanding of how policy will react systematically to changes in economic conditions. i believe the fomc should move forward to describe a reaction function and then communicate our actions and decisions in terms of this reaction function. a detailed monetary policy report could be a useful vehicle for such enhanced communication. because systematic policy is easily communicated to the public, it will improve the transparency and predictability of monetary policy, which reduces policy surprises. businesses and consumers are more informed about the course of monetary policy because they understand how policymakers are likely to react to changing economic circumstances even if they are not certain what those economic conditions might be. equally important in my view is that greater clarity about policymakers ’ reaction function strengthens accountability. thus, systematic policy, communicated transparently, strengthens accountability and serves to preserve the central bank ’ s independence. bis central bankers ’ speeches

slightly against the dollar during the same period. since our march assessment, the actual depreciation of the swiss franc, i. e. weighted in terms of exports, amounts to 1. 7 %. the corresponding relaxation in monetary conditions is weakening the effects of our policy of lifting interest rates and is increasing inflationary pressure through two channels. one the one hand, it is bringing about an increase in import prices, which could have an effect on consumer prices. even though the impact of this channel may have diminished during the past few years due to increased competition, there is no guarantee that – against the current backdrop of near full employment – it will not again be reactivated. on the other hand, it is strengthening the competitive position of our economy, thereby giving exports and economic activity a boost. as a consequence, the weak franc could heighten inflationary pressure in an economy already running at full steam. on the credit market, growth in mortgage lending is slowly receding, with the current rate of increase below 5 %. the “ other loans ” category continues to expand rapidly, while matching observations of the past in comparable phases of the economic cycle. this category is now growing at a rate of about 8 – 10 %, as at the beginning of the 2000s, when their level in fact considerably exceeded the levels we are currently experiencing. m1 and m2 shrank, which is nothing out of the ordinary during a phase of rising interest rates. when this happens, savings and sight deposits are shifted into time deposits. m1 and m2 are affected by this substitution. m3, which is not affected, is growing at a rate of 2 % to 3 %, which is appropriate for an expanding economy. inflationary risks in the current environment, price stability is subject to three types of risk : the first risk is connected with the development in the price of oil. the barrel price for brent crude rose by 40 %, from usd 51. 0 in january to usd 71. 7 in may. this will lead to higher inflation during the course of the year. unlike oil price hikes between 2004 and 2006, the most recent rally took place when capacity utilisation was higher. if the current surge in oil prices were to continue, it could affect prices more easily than previously. the second risk is due to the fact that demand is growing at too rapid a pace in relation to the development in production capacity. we estimate the gdp growth rate that can be sustained without pushing up inflation – potential gdp growth – at