this privilege any more than greece, latvia, and various other states. to toss away the imf ’ s umbrella and set off empty - handed to meet with foreign creditors in an attempt to refinance the loans maturing in the next two years would be a fatal error. in fact, the loans that have already been received have guaranteed foreign exchange reserves sufficient to enable the treasury to service its debt for the next two years without major foreign currency purchases. however, foreign reserves would fall to a level that is not acceptable. the cost would be a lower exchange rate than otherwise, and it would be inadvisable to relax the capital controls at the same time. fourth, it is important to take the first steps towards removing the capital controls as soon as possible after the objectives described above have been achieved. the objective is to make the disappearance of the last vestige of controls an event that will hardly be noticed. we learned from the financial collapse that fair weather can turn foul at short notice. once the storm has passed, however, the skies can also clear more quickly than most people expect.

household inflation expectations and the breakeven inflation rate in the market entails risk premiums. the effect that the real rate has on domestic demand and inflation depends on what the equilibrium real rate is considered to be at any given time ; that is, the real rate that neither stimulates nor dampens the economy. the equilibrium real rate has probably fallen in iceland, as it has in most economies in the wake of the financial crisis, but exactly where it lies is highly uncertain. one of the monetary policy committee ’ s tasks is to attempt to assess it. it is normal that central bank interest rate should rise above equilibrium when a positive output gap develops and inflation is above target, but neither is the case at present. that being so, it was appropriate to contain the rise in the real rate by lowering the bank ’ s nominal interest rates. bis central bankers ’ speeches some will surely ask : shouldn ’ t the bank have lowered interest rates earlier? hasn ’ t the monetary stance simply been too tight in the recent past? i don ’ t think this is the right time to dissect these questions, not least because many things look different in the rear - view mirror. as is said in njals saga, “ everything is ambiguous in retrospect. ” that said, i think there are solid arguments in favour of a negative response to both questions. as regards timing, it is worth mentioning that it was not until very recently that inflation expectations have moved as close to target as they are now. as regards the latter question, most measures of the monetary stance have been well within normal range for quite a while, and there are few other signs that it has been too tight, expect perhaps in the past few months. for example, nominal growth in broad money measures about 6 % after adjusting for factors that are largely unconnected to domestic economic activity, such as deposits of failed financial institutions in active ones. this growth is consistent with the situation that should exist when the economy is at equilibrium – when inflation is at target and output is at capacity. an examination of nominal gdp growth gives a similar result. based on forecasts for 2014, it will average 5 % in iceland over the period 2011 – 2014, as compared with just under 4 % in the us and the uk, about 2½ % in sweden – which is just above the inflation target alone – and about 1½ % in the euro area, which is even below the inflation target for the region. this has been used to support