and it may well be that macroprudential tools will be activated in the near future so as to mitigate the risks attached to it. the bank ’ s financial market infrastructure report will be issued early in june, and much is happening in that arena with the renewal of payment systems and the impact of technological developments on banks and payment intermediation. honoured guests : the legacies of the financial crisis have now by and large been dealt with. we are now embarking on a new period of capital account openness. this entails both opportunities and risks. we must seize the opportunities, analyse the risks, and take appropriate action. to the best of its ability, the central bank will contribute to this process where appropriate. in closing, i would like to thank the supervisory board and the monetary policy committee for their work over the past year, and i wish to thank the central bank ’ s many colleagues and collaborators for their cooperation – not least the prime minister ’ s office, the ministry of finance and economic affairs, and the financial supervisory authority. i would also like to thank the financial institutions with which the bank interacts for their cooperation. furthermore, i would like to thank the parliament of iceland, particularly the economics and commerce committee, for their collaboration. and last but certainly not least, i want to thank the staff of the central bank for a job well done over the past year.

so the bank must reiterate its words of warning. at the same time as the central bank announced its interest rate decision yesterday, it published monetary bulletin. this outlines the main assumptions behind the bank ’ s decision along with indications about its policy in the near future and the viewpoints it considers important to bear in mind for economic policy. in the current edition, major changes were made to the assumptions behind the baseline forecast, which enhance both the credibility of the forecast and monetary policy transparency. by doing so, the central bank of iceland joined the vanguard of the inflation - targeting central banks. monetary bulletin reveals that inflation developments have turned rather more favourable than the bank ’ s previous forecast had indicated, and although underlying inflation was somewhat higher in february and march than was hoped, the bank expects both headline and underlying inflation to decrease rapidly in the next months. by both measures, inflation will be close to target from the middle of 2008. there is no doubt that this outcome is largely thanks to the tight monetary stance, which included raising the policy rate by 3. 75 percentage points last year. as usual it should be pointed out – and especially in the current climate – that exchange rate uncertainties can complicate this picture. the exchange rate has been relatively stable after the adjustment that took place in the first half of last year, and the krona is currently somewhat stronger than historical measures would warrant, although it should be admitted that determinism is probably not the most suitable approach for assessing currency developments. one reason for uncertainty about the exchange rate is the large current account deficit, as well as the fact that it can easily be driven by factors over which we have no control, given how closely iceland ’ s financial sector is now integrated with global financial markets. a central bank with a legislative and regulatory remit to target inflation is of course pleased with such inflation developments, but would prefer them to be built on a more solid foundation. domestic demand growth has declined, but rather more slowly than the bank had hoped. the current account deficit is large and will also contract more slowly than the bank would have desired. demand remains buoyant in the housing market and there are indications that the rate of credit growth may be on the increase again. for these and other reasons, the bank will remain on the alert and not ease its monetary stance until even clearer signs emerge that a lasting change has been established. equity prices have soared in iceland in recent years. one explanation for the increase may be that icelandic companies have