the many and different challenges young people face now and in the years ahead, let us be inspired by what has been achieved and have the courage, determination and tenacity to build a future and a people bound together by values that would make ruth smile. bis central bankers ’ speeches again, i wish to thank the school and the trust for their sterling efforts in educating our youth. congratulations to the recipients of the scholarships on offer today. your efforts will inspire a new generation of women to live lives that have meaning, that contribute to making our country more inclusive and just, a celebration of all that life and living has to offer in a south africa that has been shaped by women like ruth. i thank you. bis central bankers ’ speeches

met by households and firms minus expected inflation, that is too high. the market rate exceeds the repo rate with a spread that is determined by see svensson, lars e. o. ( 2003 ), " escaping from a liquidity trap and deflation : the foolproof way and others, " journal of economic perspectives 17 ( 4 ), 145 - 166, for literature references and a review of this research. my own contribution to this research can be found on my website, www. princeton. edu / svensson. various risk and liquidity premia. this spread is now unusually large due to the financial crisis. this means that the market rates are positive even if the repo rate is zero. with some simplification, the real market rate can be specified as : real market rate = nominal market rate – expected inflation = repo rate + spread – expected inflation. even if the repo rate is reduced to zero, the real market rate can be too high, because the spread is large and / or because the expected inflation is low. 4 the real market interest rate can thus be lowered, if the spread can be reduced. the measures implemented by the central banks and other authorities in various countries to improve the functioning of the financial markets, what ben bernanke calls " credit easing ", 5 can reduce the spread and thus contribute to a lower market rate. however, even if the various spreads are still larger than normal, it is, quantitatively probably only a rather moderate reduction of the real market rate that is possible in this way. the really substantial effect on the real market rate can instead be achieved if inflation expectations can be raised. it is particularly dangerous if, instead, expectations of deflation arise, that is expectations of negative inflation. the real interest rate may then become far too high. a nightmare for central banks is a downward spiral, in which a too high real interest rate slows down the economy and leads to increasing deflation and expectations of decreasing inflation, which in turn lead to a still higher real interest rate that slows down the real economy even more and leads to even greater deflation. with a zero lower bound it is therefore important for the central banks to affect and raise inflation expectations in some way. how this should be done is the real problem with a zero lower bound for the interest rate bound and a liquidity trap. it may even be necessary to raise inflation expectations above the inflation target for a while in order to achieve a sufficiently