We forecast that the rate of inflation will decline rapidly in 2009 and this will probably mean that people will continue to talk about deflation. If so, it is important to remember why inflation is falling. A large part of the explanation comprises falling energy prices and falling interest expenditure; that is factors that are favourable to growth. And it is also important to remember that a temporary fall in the rate of inflation towards zero, or even below zero, should not be confused with a prolonged process with falling prices that affects long-term inflation expectations. In the latter case, consumption and demand may come to a halt, which could further reduce inflation expectations and thus affect demand in an ongoing negative spiral. Our forecasts, and those of most other experts, indicate that growth will recover in 2010 and that inflation will then increase. Expectations of generally falling prices over a long period of time should not thrive in such an environment. We expect the financial crisis to peter out during the course of the year that has just begun. However, the analysis of what has happened and of what needs to be done in terms of regulation will continue. The discussion of the consequences for monetary policy and the monetary policy framework will also continue. One question that will probably arise again is whether, and if so how, central banks should take the development of credit and asset values  BIS Review 2/2008  7  such as property prices into account.
Moreover, the opportunities for households and companies to borrow money have been restricted because access to credit has declined. The difficulties for banks and other lending institutions to find funding became acute when the financial crisis also hit Sweden with full force. They were forced to accept funding at shorter and shorter terms as these were the  BIS Review 2/2008  5  only markets that continued to function. In this situation the Riksbank intervened by, for instance, offering the banks loans at 3 to 6 months, that is, at much longer maturities than the daily and overnight loans normally offered. We took these measures to improve the functioning of the markets and to make it easier for the banks to continue to provide loans to households and companies. We will continue to offer this form of liquidity support as long as is necessary. The extraordinary measures taken by the Riksbank thus aim to ease the supply of credit and improve the functioning of the market. Although the measures primarily concern safeguarding financial stability, they will also improve the ability of monetary policy to stabilise inflation and the real economy. Substantial interest rate cut in December On 3 December we made the individually largest change in the repo rate since the inflation target officially began to apply in 1995.