It is difficult at present to determine the future direction for monetary policy, which will depend partly on the development of the Iraq crisis and the effects of its possible outcome on inflation prospects. Before I go on to discuss history, let me emphasise one more thing. The repo rate decision we consider most appropriate depends on the overall direction expected for economic policy. Recently, there have been claims that this is an appropriate time to counteract the weakening of the economy with a more expansionary fiscal policy. Some debaters even claim that it would be desirable in the present situation to give up the principles that have guided budgetary policy in recent years, with an expenditure ceiling and surplus target. I don't agree with that at all. If there is short-term room for manoeuvre and it is possible to obtain higher growth and employment without threatening the inflation target, this should be safeguarded by lowering the repo rate. To relinquish the fiscal policy regulations when they may be really put to the test would send a very negative signal to all those who analyse the Swedish economy. This could in turn risk having directly counter-productive effects on the interest rate and thereby on economic developments. Monetary policy 2000-2002 Let me return to a retrospective look at the development of the inflation rate and the monetary policy conducted. The Riksbank has published an appendix in the Inflation Report that is intended to facilitate the evaluation of monetary policy during the period 2000-2002.
At that time the price increases were driven instead by expectations that prices would continue to rise strongly in the future. When it eventually became evident that these expectations were not going to materialise, the prices fell quickly. Such speculative elements do not appear to exist today. At the same time, property companies’ earnings and debt-servicing ability are good. As things stand today, the property sector will hardly cause any large loan losses for the banks and so it does not constitute a threat either to the stability of the financial system. Housing prices and household debt Over the past one to two years we in the Riksbank’s Executive Board have devoted quite a bit of attention to the house market, where a rapid rise in prices has gone hand in hand with an increase in household debt. But it is important to distinguish between the conclusions we have come to regarding  1/6  the significance for financial stability and the discussions we have had in connection with our monetary policy decisions. I will come back to this. That house prices have risen rapidly in Sweden and many other countries can hardly have escaped anyone’s attention. In Sweden, house prices in the past ten years have more than doubled, and the upswing has been especially strong in metropolitan areas. Increasing house prices have been accompanied by an accumulation of household debt. Due to the fall in interest rates, households’ interest costs have dropped, despite the rise in debt.