The slower recovery abroad, with lower policy rates, indicates that interest rates in Sweden will not need to be so high. Household debts still cause concern One factor that I personally have taken into consideration when raising the repo rate this time and supporting the forecast for continued increases, is the development of household debt. If this does not slow down, I believe that there is a risk of financial imbalances arising, if not within, then beyond the forecast horizon. I believe that a gradual increase in the repo rate will contribute to reducing this risk. Finansinspektionen’s recently introduced loan restrictions are also one step in the right direction. A future challenge will be to find an appropriate balance between supervisory regulation and interest rate-setting. Of course, this overall picture may have to be revised if developments do not turn out as we are expecting. I have already pointed out that the global economy is facing fairly major challenges. A new economic downturn abroad could lead to lower resource utilisation and inflation in Sweden, too. Monetary policy would then need to be more expansionary than in the forecast. But there is also a possibility that the economic upturn in Sweden turns out to be faster and stronger than we have assumed. In this case we might need to raise the repo rate slightly faster. But none of these alternatives is our main scenario at present.
...and a high level of household saving gives scope for growth But Swedish households have also acted in a way that has increased resilience during the economic downturn. Unlike in many other countries, savings in Sweden have shown a rising trend over the past decade (Figure 3). 6  BIS Review 149/2010  During the crisis, saving increased both in Sweden and in most other countries. This is largely due to what is known as precautionary saving as a result of increased uncertainty. In many countries this uncertainty concerns the large deficits in public finances and what consequences these may have for household incomes in the future. As this uncertainty can be expected to remain over the coming years, private consumption will probably be held back. But we do not have this situation in Sweden. Although one can note that consumer confidence has strengthened in many areas in recent years, it is primarily in Sweden that it has reached historically high levels (Figure 4). The combination of sound public finances and high household savings means there is scope to reduce saving over the coming years. Together with relatively large increases in disposable incomes, this means that private consumption is likely to increase at a good pace. Sweden is one of few countries in the OECD area where the labour market has clearly begun a recovery. Moreover, the upturn in employment is on a broad front. The manufacturing industry has once again begun recruiting and is expected to continue to do so over the coming period.