The present assessment Today the Riksbank is presenting a new economic assessment of the coming one to two years. The general features of the picture are the same as in our June report. Although the economy has moved further along the upward phase, we continue to believe in a main scenario that combines a strong  BIS Review 87/2000  2  economic trend with no unduly alarming inflationary tendencies. It is important to note, however, that there are also a number of clear risks that we must keep an eye on in the future. Monetary policy is currently formulated on the basis of an assessment of inflation excluding transitory effects from indirect taxes, subsidies and house mortgage interest expenditure (UND1X). In the main scenario in the Inflation Report, UND1X inflation with an unchanged repo rate of 3.75% is forecast to be 1.5% one year ahead and 1.9% after two years. When various alternative paths are taken into account - above all the risks of a higher oil price, a weaker exchange rate and more rapid wage increases - the rates of inflation are judged to be somewhat higher, namely 1.6% and 2.1%, respectively. The inflation assessment starts from a continuation of strong international economic activity. Together with rising consumption and a favourable development of investment, this provides conditions for further rapid growth in Sweden, too. GDP growth in the main scenario is forecast to be 4% this year, 3.7% in 2001 and 3% in 2002.
In addition, the central banks have, for example, taken steps to contribute liquidity to the financial system. The Riksbank will be presenting a new Inflation Report next week. As usual it will contain a main scenario and a spectrum of upside and downside risks. Considering the circumstances I have outlined earlier, the main scenario is inherently uncertain. The risk spectrum will therefore be particularly important to monitor in future as new information is obtained and events unfold. Which direction will cyclical activity take? How will the exchange rate develop? What are the underlying factors here? And how will inflation expectations move? These are critical questions for the Riksbank’s future action this autumn and winter. Unfortunately there are no clear answers. BIS Review 82/2001  5