lending to related parties, restriction on banks to carry out financial undertakings secured with its own shares, restriction on strict fit and proper rules for board members and so on. strict regulations and effective supervision are a key to the public trust. i think it is now widely accepted that it was appropriate to give the responsibility for financial supervision to the central bank. the supervisor is much stronger having the central bank behind it which also allows for a much stricter enforcement. the fifth lesson is that consensus with the labor market improves policy trade - offs. the scandinavian approach is to have general centralized wage bargaining, which is something we have struggled with in iceland in many ways, but in march 2024 a four - year wage contract was negotiated reached between the main labor market participants which we hope will assist in the fight against inflation and bringing it to target. the central bank policy rate stands at 9. 25 % and inflation is still much too high, hovering around 6 %, but projected to subside. the sixth lesson is that monetary policy needs political support, that is support from the political establishment and the public. in a way, the central bank still faces the legacy and the memory of the crisis. indeed, the central bank has had full support from the political establishment so far and in my opinion, from the public as well in carrying out its mandate and policies after the new central bank act came into force in 2020. monetary policy and other bank policies can never be a private matter of what we economists or appointed officials support or decide. they must have public support. without public support, it is very difficult for the central bank to carry out its responsibilities. as i said, and to conclude, we have faced many challenges, and i would think that my predecessor sitting here in the audience would agree. since i took office, five years ago, we have faced many shocks : from covid and the effects of military conflicts abroad to volcanic eruptions at home, but also positive supply shocks because after covid iceland experienced positive trade terms and trade shocks. the world market price on marine products and on aluminum and power rose markedly. we have experienced very rapid growth, a very tight labor market, and we have had to tighten policy, both monetary and macroprudential policy. one can always wonder or think how much authority can be given to the central bank. how much authority can be given to un - elected officials, meddling with housing policy, affordability of housing for example, or how lending is managed. nevertheless

the sovereign to default on its obligations, which would have left iceland shut out of international capital markets for years. a key aspect of crisis management was therefore to ring - fence the sovereign from the failing banks and minimise the socialisation of private sector losses. and iceland was well on its way into its deepest post - war recession, where gdp contracted by 12. 5 % from its peak in the fourth quarter of 2007 to its trough nine quarters later, in the first quarter of 2010. it fell from an unsustainable peak, of course, but the drop was spectacular nonetheless. bis central bankers ’ speeches where are we now, almost five years later? first, there is hardly any talk of a potential sovereign default any more : the public sector has a primary surplus, the overall deficit is estimated to have been around 2 % of gdp last year, government debt as a share of gdp is on a downward trajectory, and iceland has investment - grade ratings from all three major rating agencies. second, we are far advanced in rebuilding a domestically oriented financial sector. the new domestic banks, which were built on the ashes of the three failing cross - border banks, are profitable, well capitalised, liquid, and with nonperforming loan ratios that, although still high due the crisis, are falling to normal levels as private sector debt restructuring progresses and the economy recovers. third, the economy has indeed recovered, as can been seen on figure 1a. the economy has been growing since the second quarter of 2010, and unemployment has fallen from a peak of over 9 % to around 5½ %. and as figure 1b shows, this year iceland is projected to be among the world ’ s five fastest - growing advanced economies, with growth estimated at 2. 1 %, although that is due in part to the recent slowdown in many other advanced countries. and the prediction is that iceland will grow even faster during the next two years, or in the range of 3½ – 4 % per annum, causing the slack in the economy to disappear and the unemployment rate to fall to around 4 %. bis central bankers ’ speeches so how did we get here? in answering this question, we need to remember that subsequent developments were not only a function of the negative shocks hitting the economy in 2008 but also a function of the policy responses. in addition to crisis management vis - a - vis the failing banks, which i have already mentioned, the economic programme that the icelandic authorities developed in co - operation with the