per cent over the coming year will contribute to bringing inflation back towards the target of 2 per cent a couple of years ahead and contribute to a balanced development in production and employment. however, there is still considerable uncertainty regarding the economic outlook and inflation prospects. conditions for the riksbank ’ s monetary policy steering system how is an interest rate decision put into practice? what actually happens when the executive board decides that the repo rate should be raised, cut or held unchanged? this can best be answered with a description of how our system works. like many other central banks, the riksbank aims its monetary policy at steering the shortest market rate, the overnight rate. this can be done in many different ways. we have a system where we decide the conditions for the banks ’ deposits and loans with the riksbank. the riksbank supplies a payment system, rix, which manages payments in swedish krona. a payment system is an infrastructure that makes it possible to forward payments from one bank to another, and thus payments from households ’ and companies ’ accounts in one bank to the recipient ’ s account in another bank. rix consists of an account system where each of the participating banks has its own account in which payments between the banks are booked. by determining the conditions for the banks ’ deposits in and borrowing from the rix system, the riksbank can affect the overnight rate, that is the interest on overnight loans between the banks. deposit and lending rates set the limits for the overnight rate when the payment system closes for the day and trade between the banks in the overnight market has been concluded, the banks ’ accounts in rix must be in balance. this means that the banks must finance their deficits or invest their surpluses. the banks have two alternatives for achieving this. they can either balance their respective deficits and surpluses against one another on the overnight market, or they can use the riksbank ’ s deposit and lending facility. the latter means that they can deposit in or borrow from the riksbank overnight at interest rates published in advance. these are known as the deposit and lending rates, which are 0. 75 percentage points below and above the repo rate respectively. this difference creates an incentive for the banks to firstly borrow from and deposit funds with each other at a rate of interest in this so - called interest rate corridor. one could thus say that the deposit and lending rates set the limits for the overnight rate. how does the riksbank ensure

several simplifying changes to the regulatory framework. for instance, the definition of capital now focuses on tangible common equity, the truest form of loss - absorbing capital. moreover, all components of the capital base and associated deductions such as goodwill or deferred tax assets must be disclosed in a fully comparable manner. by standardising and simplifying the measure of capital, basel iii makes the regulatory framework easier to understand, and will enable market discipline to work better. another important step has been the introduction of a non - risk based leverage ratio as a supplement to the risk - based requirement. this is a “ belt and suspenders ” approach to capital regulation. the leverage ratio will help contain the buildup of excessive leverage in the system, serving as a backstop to the risk - based regime and safeguarding against banks ’ attempts to “ game ” the risk - based requirements. equally critically, the risk - based framework helps ensure that banks do not game the leverage ratio. let ’ s not forget that simple measures like a leverage ratio have been in place in the past and did not alone prevent banking failures. bis central bankers ’ speeches risk - weighting is difficult but vitally important. therefore the basel committee is in the process of reviewing the risk - weighting regime of the capital framework to ensure that it is as simple and comparable as can be while still capturing the risk profile of banks ’ varied asset portfolios. complexity is a byproduct of the desire, among regulators and banks, for risk sensitivity. risk measurement will never be perfect. simplicity, however, can sometimes come at a cost. ignoring risk does not make it disappear. without measuring risk properly, we may allow it to build up undetected. operating only with a non - risk - based leverage ratio creates incentives to shed safe assets and to increase the riskiness of asset portfolios ; to forgo risk - reducing hedging strategies because they could result in higher capital requirements ; and to engage in off - balance sheet activities and other sophisticated structures that expose a bank to contingent risks. this is likely to increase the aggregate risk in the economy and thereby create global financial stability concerns. the lesson, therefore, is not to rely on either risk - based or non - risk - based measures alone, but to have each reinforcing the other. a combined approach, as basel iii introduces, is better than any single approach. i believe basel iii strikes a reasonable balance by strengthening overall bank - capital requirements