All in all, we have come to the assessment that the risk spectrum is neutral; we see equally large risks for a lower inflation path than in our main scenario as for a higher path. Repo rate lowered 0.25 percentage points The Riksbank's total assessment is that inflation measured at the rate that has guided policy in recent times, UND1X, will be slightly lower than the target level one to two years ahead. However, the picture is more complicated than this. Despite the fact that this indicates the repo rate should be lowered, the decision has not been a simple one. This is because one important reason for inflation being lower than the target level one to two years ahead is that electricity and oil prices are expected to fall back from their current high levels and it is not certain this fall in prices will affect policy. When adjusted for energy prices, inflation is expected to be in line with the target two years ahead. The forecasts of inflation presented in the Inflation Report provide scope for lowering the repo rate by 0.25 percentage points. This was also the decision taken by the Executive Board of the Riksbank yesterday. An important circumstance that affected the decision is that the unease and uncertainty in the global economy risk leading in the short term to a much worse development in economic activity than described in the main scenario.
What the central banks of the world can do in this situation is to continue to pursue their policy consistently to avoid contributing to greater uncertainty and increasing pessimism. If participants in the financial markets of a few years ago could be said to show a strong willingness to take risks and perhaps a sometimes exaggerated optimism, there are today tendencies in the opposite direction, particularly if one looks at the headlines in the media or listens to market participants. The central banks can balance this by maintaining credibility in price stability and by safeguarding the functioning of the payment system. The Riksbank strives to conduct a clear, credible monetary policy that is generally accepted by both the Swedish people and participants in the financial markets. We have therefore specified an explicit target for the annual inflation rate and explained that we normally try to keep to a simple rule-of-thumb; if the forecasts of inflation one to two years ahead exceed the inflation target we raise the interest rate and vice versa if the forecasts show inflation below target level. This clear intellectual framework makes it easier to influence expectations in society of monetary policy and to evaluate the policy afterwards. Both we ourselves and external analysts can take a stand on whether the policy appears sensible, whether the forecasts we make are reasonable, and whether we follow the principles we have declared that we follow.