As the Riksbank’s reporate changes have a major impact on inflation measured in terms of the CPI, it is in this context most relevant to look at inflation measured in terms of the CPIF, that is the CPI with a fixed mortgage rate (see Figure 3). As can be seen in the figure, CPIF inflation was around 3 per cent when the Swedish economy was hit by the fall in demand at the end of 2008. It is now down to levels of around 1 per cent. The fact that Sweden has a substantial surplus on its current account, as shown in Figure 4, also indicates that domestic demand is relatively low. BIS central bankers’ speeches  3  Figure 4. Current account as a percentage of GDP Per cent 10  10  8  8  6  6  4  4  2  2  0  0  -2  -2  -4  -4 Spain  -6  -6  Ireland USA  -8  -8  Sweden  -10  -10 90  94  98  02  06  10  Source: IMF WEO, October 2012. The current account reflects the difference between the value of what is produced and the value of what is absorbed in the economy through consumption and investments. It also shows the difference between total saving and total investment in the economy.
As a rule, foreign funding, excluding equity and reserves, did not exceed 10% of all sources of financing of the banking sector. There has always been a difference amongst individual banks, a reflection of the different strategies for funding and acquiring sources, yet the overall importance of foreign funding is not in its percentage, but in its long-term nature. This is the premise on which the good business relations between parent banks and subsidiaries is based. When the crises stroke the relative importance of domestic deposits in financing the claims on Macedonian borrowers actually increased. In the Republic of Macedonia the ratio of loans to domestic GDP is still 47–50%, while the ratio of deposits to domestic GDP is around 55%. These ratios in the developed world tend to be above 100%, which shows the potential for growth. Similarly, the ratio of household debt, including mortgages, to household disposable income, is around 25%, substantially lower than most countries at a similar level of development, also offering opportunities for the banking sector. Regulatory capital allocation, on average, is 17%, more than two times the legal minimum of 8%. The high capitalisation of banks means they have the capacity to take losses and do not need to evergreen existing loans, but lend to new customers that are more likely to borrow. Strong capital ratios are one of the bright spots of the Macedonian economy. The Macedonian banking sector comprises 16 banks.