expansionary monetary policy and fiscal policy conducted in large countries could have pushed up international inflation with a risk of increased imported inflation. i also mentioned that we could not be certain that the krona would strengthen in the way we had assumed, or that productivity would recover as we had predicted. we know from experience that the inflation outlook can change rapidly. during the late spring and summer of last year we were concerned over inflation being too high, even though this was mainly due to rising oil and food prices. rising unit labour costs were also taken into consideration. fears that high inflation expectations would become entrenched also formed part of the picture. we then raised the interest rate despite beginning to see signs of weaker economic activity in the future. the assessment was that this was necessary to attain the inflation target a couple of years ahead. when developments turned out differently, we had to quickly change our course. we are of course always prepared for situations like that. we are ready to act as quickly and as forcefully as is necessary, both to attain the inflation target and to carry out our financial stability responsibilities. unconventional measures there have been many discussions on what the riksbank could be expected to do if developments turn out weaker than we are now assuming. and our toolbox is not empty because the repo rate is so close to its lower limit. put simply, the way the repo rate tool works is that the banks either borrow or buy riksbank certificates with a maturity of one week from the riksbank at the price of the repo rate. in addition, there are what is known as daily fine - tuning operations between the riksbank and the banks at an interest rate very close to the repo rate. the current level of the repo rate and expectations of what it will be in the future in turn affect other interest rates with longer maturities and, of course, activity in the economy. as i mentioned earlier, the riksbank has implemented a number of measures that work through the banks in order to improve the functioning of the financial markets. this includes loans at maturities of 3 and 6 months to swedish banks, against collateral and at a variable interest rate. these measures were recently supplemented with the possibility to borrow at a 12 - month horizon. the primary aim of the lending has been to manage financial stability. but the measures also have monetary policy side - effects in that the riksbank is active further out on the yield curve than normal. the liquidity premiums decline

immediate realm of inflation measured by cpi or core inflation measures, focusing on financial stability potentially constitutes an important additional leg for monetary policy to stand on. obviously this is a vast and complicated subject. i have no doubt that much research will be devoted to the question of the role of financial stability in formulating monetary policy in the years to come. 12 in the banking industry, the consolidation process of recent years has produced some very large and often highly complex financial institutions with truly global reach. they are often “ systemically relevant ”. in other words, problems at one of these institutions can potentially have a detrimental impact on the entire financial system which, in turn, could cause great economic dislocation. as a consequence, these institutions are deemed by many to be “ too big to fail ”. in essence, the market assumes that such institutions would likely be bailed out in the event of a severe crisis. this assumption can be inferred from the premium that rating agencies attribute to large banks. all else equal, large banks get a better credit rating than small banks. 13 the emergence of very large and highly complex banking institutions therefore undoubtedly poses a new challenge for central banks. it is therefore not surprising that central banks have become more active in the area of financial stability. as a side note, let me also mention that the need for central banks and supervisors to intensify their cooperation – both nationally and internationally – is another consequence of the growing importance of large and complex internationally active financial institutions. 2. observations about tentative lessons from market turmoil 2. 1. issues regarding transparency let me now turn to an attempt to draw some tentative lessons from the current market strains. the first regards transparency. a substantial body of academic research has contributed to making central banks much more transparent in recent years. 14 transparency has become a hallmark of modern central banking and rightly so. transparency is an integral part of how an independent and potentially powerful institution like a central bank guarantees ernst baltensperger, philipp hildebrand, thomas jordan, 2007, " the swiss national bank's monetary policy concept – an example of a'principles - based'policy framework ", swiss national bank economic studies no. 3. this argument is closely related to the discussion about the role of monetary policy in the presence of asset price bubbles. see, for instance, michael mussa, “ asset prices and monetary policy ”, in : w. hunter, g. kaufman, and m. pomerleano ( eds. ),