inflation? the riksbank act states that monetary policy ’ s objective is to maintain price stability. partly in order to make the policy intelligible and open for assessment, the riksbank has decided that inflation - measured as the annual change in the consumer price index ( cpi ) - is to be held at 2 %, with a tolerance interval of ±1 percentage point. motivating low inflation is not difficult. a great deal has been written on the subject. but perhaps it will suffice to recall the swedish experience in the 1970s and 1980s. the high and widely fluctuating rate of inflation had clear negative effects on our economy. productivity gains and investment growth in that period were low. sharply rising prices led to an arbitrary redistribution of income and wealth. in order to rectify the corporate sector ’ s competitive position, the value of our currency had to be written down on a number of occasions. bit by bit, however, more and more people, regardless of which political party they supported, realised that this economic policy could not be sustained. so in the early 1990s, sweden finally joined the growing number of countries that had chosen to re - focus their policy on low inflation. but while it is not difficult to advocate low, stable inflation, it is less easy to argue that just 2 % is the appropriate rate. when the inflation target was adopted in 1992, it was noted that this was approximately the level of ambition that important countries had chosen. moreover, inflation was currently around that level when the decision was made. alan greenspan has argued that inflation should be so low that people generally do not give it a thought when making economic decisions. that points to 2 % as a reasonable level. there are some objections, however. some argue that an inflation target ought to be higher. one reason has to do with the downward rigidity of nominal wages. we know from experience that wages rise, sometimes so much that they generate inflation. downward wage adjustments are less frequent. seen from this angle, inflation might be regarded as a smooth way of achieving necessary adjustments to real business costs. another risk, according to some observers, is that an unduly low inflation target leaves too small a margin for monetary policy. the economy is liable to land in a situation where the central bank is no longer in a position to influence the development of prices by pushing the real interest rate down. it simply is not possible to reduce the interest rate below zero per cent. as i see it, the

reflected in its propensity to increase savings. therefore, household balance sheets remain positive, an indicator that sends positive signals for a potentially growing consumption in the near and distant future. i take this opportunity to reiterate that optimism shapes our present and our future. the time has come for the consumers ’ sentiment to start its take off. this would create the desired chain reaction for accelerating money velocity and circulation of goods in the economy, making the economy recover to its pre - crisis parameters. on my behalf and on behalf of the bank of albania, i would like to thank the bank of italy and the bank of france for the assistance and partnership during the twinning project. at the completion of this project, the bank of albania has upgraded the organisational and operational framework of its main departments and has approached to its european counterparties. bis central bankers ’ speeches