world will probably take some time, but sooner or later the differences between emerging and developed economies will narrow, mitigating pressures on our currency. beyond these fluctuations, the gains in competitiveness that our country needs in order to remain on the path to development will be achieved not with actions that artificially increase the level of the nominal exchange rate, but rather with structural reforms that will improve productivity and, therefore, the competitive stance of our exports. the many differences in the speed of the economic recovery in the world has combined with foreign exchange tensions and, in the past few months, increased inflationary pressures at the global level. food prices, responding to the stronger demand of emerging economies and to worsened supply - side conditions, have skyrocketed, rising even faster than between early 2007 and mid - 2008. add to this the sustained increase in the oil price since mid - 2010, which intensified last february because of the political unrest in the middle east and northern africa. bis central bankers ’ speeches under these circumstances, today monetary policy faces an important challenge. like after the global financial debacle of 2008, when it was highly flexible in responding to the confidence crisis around the world, now it must again be flexible in withdrawing the monetary stimulus, creating the conditions for sustainable growth and acting preventively to avoid a resurgence of inflation. since last december, the board has raised the monetary policy interest rate ( mpr ) by 75 basis points to 4 percent in the meeting of last march. in the scenario we consider the most likely, we will continue to remove the monetary stimulus, at a pace that will depend on unfolding macroeconomic conditions, but which will be principally oriented to achieving the inflation target. now let me describe the factors that underlie the most likely scenario and the main risks it faces. macroeconomic scenario in the last few months, y - o - y cpi inflation, in line with projections in december ’ s report, has hovered around the target, with an annual variation of 2. 7 percent at february. core indicators have returned to positive, yet still low ( figure 1 ). nonetheless, as i said, even if actual inflation continues to be aligned with the target and our previous forecasts, the latest developments have increased our concern for inflation, as they have in other economies. in the emerging world, growth has proceeded as expected, within an environment where foreign exchange tensions remain and commodity prices continue on the rise, especially for oil and foodstuffs ( figure 2 ). this

were obviously far more convenient than the large and heavy copper coins. but with demand for the new banknotes rising, the bank 1 / 4 bis central bankers'speeches started to print more and more of them. soon, the inevitable happened : the notes lost value, the public demanded that their notes be redeemed, and the bank came crashing down. from the dust of stockholms banco, the riksbank was founded by the government. and one of its tasks was to “ maintain the domestic coinage at its right and fair value " 1 – which, neglecting the old - fashioned language, sounds like a policy objective that would still be useful today. money based on public trust can powerfully enhance welfare. this is what the experience of the riksbank has shown, throughout its trials and tribulations. but its experience has also shown that the benefits only accrue if the public ’ s trust in the value of the currency is given policy priority. 2 the riksbank and inflation targeting some of the challenges the riksbank has encountered during its history have been mentioned already. let me fast - forward to one of the more recent policies that has certainly strengthened trust in the central bank ’ s ability to deliver price stability : inflation targeting. the riksbank has been an early adopter of this policy, introducing a target of 2 % inflation in 1993. inflation targeting greatly helped to moderate swings in inflation and output. in fact, it did so to such a degree that economists like nobel prize winner robert lucas2 had declared the central problem of preventing large economic fluctuations to have been solved. as we now know, inflation targeting has not spelled “ the end of history ” for monetary policy. rather, the “ great moderation ”, as these years of extreme economic stability came to be known, ended in the “ great recession ”. 3 leaning against the wind as policymakers had to deal with tumbling banking systems and toxic assets in banks ’ balance sheets during the financial crisis, they could once again turn to the nordic experience, this time that of the early nineties. in a 1996 issue of the riksbank ’ s quarterly review, a certain stefan ingves laid out the management of this episode in detail. later, as the chairman of the basel committee on banking supervision, stefan would put his knowledge to excellent use and made an invaluable contribution to sounder banking systems. the repercussions of the financial crisis were not limited to regulatory policy, though.