On the other hand, I believe that it is worthwhile for a central bank to act with some caution in areas where it does not have any previous experience to draw on. This is why I feel that it was justified to reduce the repo rate in small stages when we were already at a record-low level in the initial position. BIS Review 111/2009  3  Measures when the interest rate is close to zero What then should a central bank do when the policy rate can not be lowered to the level justified by the state of the real economy? Many central banks have struggled with this question during this crisis. One possibility is to allow the policy rate to remain at the lowest possible level for a longer period than would otherwise have been required. The effects of such a decision can also be reinforced in several ways. The central bank can, for example, lend money to the banks at a fixed interest rate at a maturity that corresponds to the period during which the policy rate is expected to remain at this low level. This can increase the credibility of the forecast that the rate will remain unchanged in the year ahead. It should also push down some interest rates at longer maturities. We decided to implement both of these measures. Since the monetary policy meeting in February, our forecast has comprised a low repo rate during a relatively long period of time.
Nevertheless, although the positive signs of a recovery that we could already see in July have strengthened, there is still uncertainty about future developments. In the USA, which is suffering its most prolonged recession since the 1940s, there are signs of a light at the end of the tunnel. The housing market has improved and the statistics indicate that the fall in house prices has come to a halt (see Figure 4). After four quarters of falling GDP, growth in the third quarter is now expected to be positive (see Figure 5). The labour market is continuing to weaken, however, and unemployment has reached almost 10 per cent, which is an unusually high figure for the USA. Development in the euro area has been somewhat better than our assessment in early July. It appears that the fall in GDP has come to a halt. Several of the major economies have even reported positive GDP growth. However, the situation on the labour market has deteriorated further. Unemployment is almost at the same level as in the USA. The fall in Sweden's GDP is slowing down Development in a small open economy like Sweden is highly dependent on the development of economic activity abroad and Sweden has also been hit hard by the severe international downturn. GDP has fallen for five quarters in a row. However, since the beginning of the second quarter of this year this fall has slowed down and GDP even increased somewhat between the first and second quarters (see Figure 6).