Unnecessary fluctuations in the real economy can then be avoided. As I  BIS Review 98/2000  4  mentioned earlier, the Riksbank has therefore clarified that if higher or lower inflation is judged to be a transitory phenomenon, attempts to counter it immediately and fully are sometimes not desirable. From these clarifications it will be clear that in the conduct of monetary policy we do in fact also take the real economic consequences directly into account. It should be underscored, however, that making allowances of this kind does presuppose a basic confidence in monetary policy - that different economic agents count on our fulfilling the inflation target, if not immediately then at least in the near future. There has been a discussion recently, among economists as well as in the public debate, as to whether the interest rate should be raised already even though a threat to the inflation target is not apparent in the coming two years. In that way we could avoid a build-up of imbalances that in the longer run might necessitate a drastic repo rate increase and thereby expose the real economy to major strains. I have no objections to this view in principle. We can indeed take such matters into account in our intellectual framework. It is important, however, to be clear about which imbalances one is referring to and what real economic effects they might have.
This immediately raises the difficulty of determining when an asset market can be said to be over-valued. And if one does decide to intervene, how can one  5  BIS Review 98/2000  be sure of deflating the bubble in an orderly manner? Just mentioning these two problems often leads those concerned with central banking to conclude that intervention is not advisable. I should like to broaden the argument. In addition to the objective of price stability, as the central bank of Sweden the Riksbank is responsible by law for the payment system and financial stability. Without prejudicing these aims, we should also strive to support economic policy’s other goals, such as high growth and employment. This means, for instance, that we should take pains to avoid unnecessary fluctuations in output and employment. So if we see what we believe to be mounting financial imbalances and judge that in time they will jeopardise a stable economic development, I consider that in principle, at least, there is a case for acting with the repo rate even if we do not perceive a direct threat to the inflation target. The difficulty in practice lies in deciding when an intervention is called for. To some extent, this is made easier by the risks being normally inherent in the growth of credit in the economy rather than in the actual development of asset prices. In conclusion I can mention that the Riksbank has been working on these matters a great deal in recent years.