Consequently, other tools than the policy rate will continue to be needed to ensure that other interest  10 See CGFS (2019) for a summary and discussion, and Hansson et al. (2018) for implications for the monetary policy analysis. 11 As I have said, after the financial crisis, new models were developed that included a role for asset purchases; see, for example, Gertler and Karadi (2015). 8 [13]  rates and lending develop in such a way that capacity utilisation in the economy is maintained and the inflation target is met. How far can the policy rate be cut? At present, the Riksbank’s policy rate is at zero per cent and, according to the Monetary Policy Report from November 2020, the Executive Board’s best assessment is that it will remain there over the entire forecast period, which is to say until the end of 2023. At the same time, we have emphasised that the policy rate may be cut to below zero, should the circumstances justify it. We have done this before – cut the policy rate to slightly below zero, that is. Between February 2015 and December 2019, the policy rate lay in the range of -0.1 to -0.5 per cent. Our experiences of this period were mainly positive, as the low policy rate contributed to inflation again rising towards the target without any major negative side effects. Cutting the repo rate ‘deeply’ is another thing, however.
In such cases - is it self-evident that the general public will consider that the economic advantages of cutting the interest rate to far below zero justify the nullification of old rules on for example saving – that you will at least get back what you saved? In a small, open economy, it may be even more complicated, as there are alternative means of payment. It could be said that the local currency is exposed to competition. So if the central bank in a small, open economy were to cut the level of interest rates far below zero, there would not only be a risk of large capital outflows (the traditional macroeconomic analysis), but also a risk that the general public would start to use other currencies for its savings and transactions. Reasoning like this may seem very foreign to us in Sweden. We associate events like this with poorly-functioning countries a long way away. But my argument is that we also need to take account of public confidence in the currency, payments and the central bank when the suggestion of deeply negative interest rates is being discussed. The advantages need to be weighed up against the disadvantages. And alternative measures also need to be considered, for example fiscal policy. This discussion becomes even more relevant when new digital currencies, such as the Facebook currency Libra, are waiting round the corner. New times place new demands on the Riksbank’s balance sheet Requirement to be able to absorb risks...