Our new assumption for the repo rate has given rise to quite a few questions, including questions about the way in which it is used as a basis for monetary policy decisions. It has been argued by some in the discussion that our new interest rate assumption has made it more difficult to anticipate our interest rate decisions. Personally, I believe it should make it easier to understand monetary policy, and I will therefore devote part of my speech to this issue. I will also discuss the significance of our new interest rate assumption for future monetary policy. We can influence the general public’s expectations of future interest rates by being clear about our view of economic development. Our ambition is to make it easier for the general public to gain a reasonable idea of future interest rate developments. At the same time, there is, of course, considerable uncertainty about this, in particular in the longer term, which is quite simply due to the uncertainty associated with the future development of the economy. Knowledge about this uncertainty is in itself relevant for firms, households and other market participants when they obtain an idea of what will happen with monetary policy in the future. This uncertainty also means that the Riksbank cannot bind monetary policy in advance to a particular path for the repo rate. It is important that the Riksbank makes this clear in various ways.
The market may also have a different view from the Riksbank of how monetary policy will react to economic disturbances of various kinds. But we can express in different ways our assessments of policy as reflected in implied forward rates and in this way clarify our view in relation to that of the market. This also enables us to influence market expectations more directly in the short term. Let me illustrate this by some examples: In connection with the Inflation Report in October last year, we said that we thought that the implied forward rate path on that occasion gave rise to reasonable inflation developments in the coming years. Consequently, no great changes occurred in market expectations when we published the report (see Figure 2). In connection with the December report, we considered that the market was correct in anticipating an increase in the repo rate at the beginning of 2006 but that the rise might be a bit quicker in the winter and spring than that reflected by the path of implied forward rates. When the monetary policy decision was announced, the market reacted consistently this time as well by the implied forward rate path shifting in a way that reflected the expected interest rate increases taking place earlier (see Figure 3).