it is part of the strength of the monetary policy regulations that there has sometimes been rather lively discussion, without this having an effect on confidence in our main objectives. another advantage of openness is that it gives forecasters, both inside and outside the riksbank, the opportunity to make comparisons that help to sharpen our forecasting. we must not forget that inflation forecasts are made under great uncertainty and that inflation is affected by unpredictable factors. nevertheless, during the 10 years we have employed inflation targeting, the average inflation rate has remained very close to the target level. to summarise, we can observe that the growth rate for 2003 was weaker than we had expected in 2002. the inflation rate, however, was more or less as expected. it is possible that we became slightly too pessimistic with regard to economic activity in 2003. when we made our monetary policy decision in december the international upturn appeared to have been confirmed, and there were also signs that the swedish economy was strengthening. inflation had developed roughly as we had calculated in earlier forecasts. although energy prices did not fall as far as we had calculated, domestic inflationary pressure excluding energy prices proved to be lower than expected, probably because of the weak labour market development and good productivity growth. the falling import prices had an even more significant effect on inflation. we assumed in our inflation forecast for the coming years that import prices would cease falling and instead begin to rise gently as international economic activity improved. the forecast for domestic cost pressure was adjusted slightly downwards as this was expected to show only a slight increase during the forecast period. the conclusion was that underlying inflation excluding energy, which was assessed as the best mirror of cyclically - related inflationary pressure, was expected to be in line with the target 1 - 2 years ahead, and this was why the repo rate was left unchanged. the information received so far since december does not appear to significantly alter the picture of a recovery in economic growth. however, there may be a risk that the weak labour market situation will last longer than anticipated and have repercussions for growth and inflation through weaker private consumption. now that we are in the midst of compiling the data on which to base our decision at the february meeting, it looks as though the new information received since december gives scope for a further slight downward adjustment to the forecast of domestic cost pressure. this is because it seems that labour market growth will be somewhat weaker than expected, and thereby also the rate of wage increases,

. however, if demand nevertheless falls and inflation beyond the forecast horizon is below the two per cent level, the conclusion is not so obvious. then it may be time to discuss lowering the interest rate. extending the forecast horizon may in some situations explain why increased flexibility is needed in monetary policy. these are some reflections on the time aspect and the monetary policy operational framework. however, there are also other important factors indicating that the inflation target and the policy rule must be interpreted with a measure of flexibility. it is easy to have a blind faith in monetary policy ’ s scope for economic fine tuning, but we should be sceptical of this for at least two reasons. one is that our forecasts and other reports on which the interest rate decisions are based contain a large measure of uncertainty, because of gaps in statistics, information lags regarding economic trends, incomplete knowledge of how companies and households will react and structural changes, such as increased globalisation. reactions to monetary policy may also vary considerably over time, partly, but not completely, due to economic activity. our knowledge is quite simply too brittle to enable us to lead the economy exactly by fine tuning monetary policy at perfectly chosen moments. the second reason why fine tuning of monetary policy is doomed to failure is that the repo rate is only one of the factors affecting the economy. the most important economic decisions in our society, such as house purchases and corporate investment, are mainly due to developments in long - term interest rates, and monetary policy decision - makers can only have an indirect and very limited effect on these. this reasoning therefore comes to the conclusion that we should not have overly high expectations of what the riksbank can achieve to influence real economy developments, as has been the focus of recent debate. there is in actual fact every reason to be humble with regard to what we can actually achieve. but if we can keep inflation within our target area of 1 - 3 per cent and clearly anchor inflation expectations around two per cent, this will have great significance for growth and employment in the long term. monetary policy is not an exact science. sometimes monetary policy is described as a car, where gentle acceleration or easing on the gas adjusts the speed of the journey down a winding road. this is a very misleading image. it is not possible to see the road ahead clearly and nor is it possible to know exactly what will happen if one puts one ’ s foot down on the accelerator pedal – only that the effect will come after a fairly long period of time