behalf of the public and the authorities, and the bank is required to wield the weapons in its arsenal whether people like it or not. the bank attempts to carry out that task as well as it possibly can. in the service of that task, the bank is granted more independence than are most government - owned institutions. one could ask why this is so. what makes it necessary? the explanation lies not least in the fact that the legislature – in iceland as elsewhere – has realised that the battle against the disease called inflation could be lengthy and uncomfortable. as time passes, the treatment of the disease could generate unpleasant side effects, and it might be tempting to do away with those side effects in the vain hope that the illness will somehow cure itself. indeed, we have heard this irresponsible notion expressed in various quarters recently. anyone who has come down with a persistent illness is familiar with the physician ’ s demand that the patient complete the course of treatment prescribed to him. if he does not, he runs the risk that the bacteria attacking him will become resistant to the medicine best suited to fight them, with the result that the medicine will work poorly or not at all the next time it is needed. the tactic of last resort under such circumstances is to prescribe a much stronger dose, which inevitably produces much more dire side effects. if a central bank, either the one located in this building or another one, should change its course in mid - stream because of escalating pressure stemming from painful side effects, it is hardly likely that such a bank would be taken seriously when it next attempted to mount a campaign against inflation. the independence of the central bank exists not least to guarantee that those wishing to take the line of least resistance, hoping that the illness will cure itself, cannot bring undue pressure to bear. the central bank ’ s independence also provides the government a buffer against such pressure. the fact is that the central bank neither can nor wants to ignore the figures that tell us that it is far from having achieved its goal of bringing inflation down to targeted levels. there are many explanations for this – or excuses, perhaps – but as has always been the case, many excuses are usually worse than one. and of course, the main explanation is that growth, and demand have been greater and more enduring than economic indicators – and therefore the bank ’ s forecasts – suggested. this has required lengthier and more invasive treatment than was previously intended. and while the central bank does not consider this

banks to keep their distance, to be silent and even somewhat inscrutable, for that standoffishness was thought conducive to creating the image that the persons behind the banks had quasi - supernatural powers, that they possessed information available to no one else and could avail themselves of preternatural tricks and stratagems to address a wide variety of problems. but times have changed – and that is for the better. central banks must not let down their guard. their policies and aims should be clear, and their actions should be consistent with those policies and aims. the independence of the central bank of iceland remains a cornerstone of its operations, and any responsible person should protect and fortify that independence. this does not mean that the central bank is above all criticism, of course. actually, there are solid reasons for claiming that the independence enjoyed by the bank justifies its being subjected to more incisive criticism than it should otherwise tolerate. the central bank itself takes the view that criticism of its work is desirable. within the bank, all are aware that, for every decision made, several options were possible, and the decision to embrace one option over all others is accompanied by a variety of consequences. in making decisions under such circumstances, there must be ample room for comment, contrasting viewpoints, and criticism. and – thank goodness – the central bank has not been free of such comments and criticism. indeed, most comments have been presented in a responsible and appropriate manner and have been both helpful and useful in the broadest sense. that is not to say that there aren ’ t exceptions – predictable canting litanies that are of little use to anyone – but valuable comments have nonetheless been salient and they are heard and considered. last tuesday, after the easter holidays, the bank announced several amendments to its internal rules and terms. those amendments were designed to grease the wheels of the financial markets, which must now tolerate deteriorating operating conditions. the icelandic government has also announced a bond issue that is launched with the same objective. though the central bank does not wish to make too much of these changes, the purpose is to pave the way for easier operation of the financial system during at time of difficulty on the global front. but at the same time as these changes were reported, the bank announced the board of governors ’ decision to raise the policy interest rate by 1. 25 percentage points – to 15 % – the largest single increase to date. that decision was the tangible manifestation of the serious