Transcript of the introductory statement from the press conference

5th August 2010

GOVERNOR

As you can see, the voting for once ended the way all the analysts had expected. We felt it was good – when there is a new governor – not to exasperate them, so that traders do not chase them around the office.

As regards the reasons for the decision, we are in quite a rare period for a central bank when both headline and monetary-policy relevant inflation are where they actually should be at the monetary policy horizon, i.e. at the inflation target. Otherwise, our view of the economy and its future is little changed. We foresee inflation being slightly higher, while the outlook for growth basically remains similar. It seems that the economy has emerged from recession, but we do not expect more robust growth until 2011 and 2012.

Looking at the summary of the forecast, it may be worth mentioning that indirect taxes will also slightly help headline inflation towards the target – and after their effect subsides even slightly above it – and then inflation will slow somewhat. I have already commented on growth. The external environment: it is apparent that the recovery is still relatively fragile, but it is being accompanied by a moderate rise in inflation. On the other hand it is taking place in conditions where interest rates, if they are being raised by any of our colleagues, are being raised very gradually. On the contrary, it can be said that the expected timing of the increase is still shifting backwards. For us it is also important of course that economic growth in our main export partner countries is picking up pace slightly. This is, to a certain extent, offsetting the problems and uncertainties regarding the southern periphery of the euro area.

As regards the new and previous forecasts, what is important is that the outlook for the price of oil has been revised somewhat. The outlook for the exchange rate has been revised – the dollar seems slightly stronger in the future.

So, I will again leave this slide on for a while for you to digest it. This is what inflation targeting looks like when it is successful, or when everybody thinks it will be successful – that is a much more accurate formulation. Inflation should rise. As I said, it will also be partly driven above the target by indirect taxes. But at the horizon that is relevant for us it should be roughly at the target or slightly below it. Monetary-policy relevant inflation will head towards the target in an even smoother way in our opinion.

As regards GDP, we are leaving the famous “W” in place, but we are leaving such a flat “W” there that it looks almost like a horizontal “I”. So, to what extent the decline will materialise – basically in addition to the uncertainty that is represented by the fan chart – is not very important.

I have to say here that our assumption about GDP growth is based on an assumption of unchanged fiscal policy. In other words it does not incorporate the cuts the government is now planning. When they have progressed further with the legislative process, we will of course incorporate them more. However, we of course had at our disposal a sensitivity scenario in which we considered – if the cuts are implemented – what effect they will have on the main macroeconomic variables.

As for the interest rate forecast, we now foresee stability for a relatively long time and gradual growth as from the second half of next year. This is again a response to the fact that the recovery simply is not that strong and the inflation pressures do not appear to us to be substantial enough to make us expect any dramatic changes in rates at the moment.

The exchange rate is gradually appreciating over the forecast horizon. Maybe it is worth mentioning the recent developments. In principle we could say that the train is not all that far from where we expect it to be, but it is moving very fast. In other words there has been a relatively dramatic shift in the last two weeks. At the moment, however, it is not dramatically different from the levels that we are used to seeing or that the forecast expects.

If we look at the comparison, the new forecast is slightly more optimistic in terms of growth, especially with regard to this year. It also expects consumer prices to be slightly higher – by 0.1, which is basically below the threshold of reasonable accuracy. By contrast, you can see there nicely in 2011 the expectation that the exchange rate path… sorry, the interest rate path, will change only in the second half of next year and later than we originally expected. From the point of view of the exchange rate, one can also see there that the forecast expects it to be slightly stronger next year. The difference for this year is not substantial.

The overall risks of the forecasts were assessed by the Bank Board as being slightly anti-inflationary. The downside risks to inflation of course include the current evolution of the exchange rate. In other words the train is moving fast and it is not clear whether it will stop. And of course another anti-inflationary – slight anti-inflationary risk – is the fiscal consolidation. On the upside, by contrast, the Bank Board identified commodity prices, as it can be seen that the recovery in other parts of the world is beginning to push them upwards, and this may of course spill over to our economy.