The most concrete example of reform based on the lessons learned from the crisis is that macroprudential policy has been established as a separate economic policy area. Over the last ten years, intensive efforts have been made around the world to define and implement macroprudential policy. Sweden has made some progress but more needs to be done. At the end of last year, Finansinspektionen, which has the main responsibility for macroprudential policy, was given the goahead by the Government to introduce a tougher amortisation requirement. This is, in itself, a positive development. But a regulatory framework that makes macroprudential policy more flexible needs to be put in place so that measures can be implemented quickly when necessary. Macroprudential policy can be specifically focused on reducing the risks associated with household debt. But the Riksbank’s assessment is that a combination of different measures is required in several policy areas to reduce these risks. 12 Above all, the fundamental causes of rising indebtedness need to be dealt with, something that is difficult to do without first tackling the Swedish housing market and its inherent imbalances. This is of course no easy task. But nevertheless an urgent one. As I mentioned earlier, the interest rate will be lower on average in the period ahead, sometimes much lower if monetary policy is to be able to meet the inflation target. The financial side of the economy needs to be robust enough to cope with such periods without macroeconomic developments being exposed to too large risks.
Upturn cut short by sovereign debt problems in 2011–2012 An effect of the severe crisis of 2008 was a shutdown in global trade, which brought the Swedish economy to a sudden halt. To support the economy, the Riksbank quickly lowered the repo rate to a, at the time, historically low level of 0.25 per cent. Around the world, other central banks and governments made herculean efforts to kick-start the financial system and reverse the trend. As the situation on the credit markets improved and global trade picked up, the recovery occurred more rapidly than expected in Sweden. From mid-2010, the Riksbank began raising the repo rate towards a more normal level. But during 2011, the recovery stuttered when unease linked to the problems of heavily burdened public finances in several European countries started to affect the credit markets to an ever-increasing degree. Measures by institutions such as the EU and the ECB helped to stabilise the situation, but weak confidence and low demand among households and companies subdued European developments. This, in turn, led to a slowdown in Swedish economic activity, despite relatively high domestic demand. GDP fell again in 2012 and the Riksbank lowered the repo rate in a number of steps. Focus on inflation and maintaining confidence in the inflation target has produced results Something which provoked head-scratching around the world during these years was that inflation remained at a relatively high level to begin with, despite the major economic slowdown after 2008.