Kristina Persson: The economic situation in a monetary policy perspective Speech by Ms Kristina Persson, Deputy Governor of Sveriges Riksbank, at a conference by Sveriges Kyrkokamerala förening, Sundsvall, 11 June 2002. *  *  *  First of all, I would like to thank you for the invitation to participate in your congress and for the opportunity to expound the Riksbank’s views of the Swedish economy at the present time. By way of introduction, I intend to discuss the role of monetary policy on a more general level and then to present the Riksbank’s view of the economic situation and inflation prospects on the basis of the most recent Executive Board meeting, where we decided to leave the repo rate unchanged. I shall also describe the risk scenario and how we see developments beyond the forecast horizon. In conclusion, I shall briefly touch on an issue that I have personally been interested in for some time, namely the economic aspects of a potential Swedish membership of the Eurosystem. The role of the Riksbank Let me first clarify the Riksbank’s tasks and explain how monetary policy decisions are taken, i.e. how monetary policy strategy is formulated. The Riksbank has had a statutory duty to maintain price stability since 1 January 1999. We have chosen to put this in operational terms by means of setting an inflation target.
This will be decided by the government and parliament, following a referendum on this question. The timetable for a decision will be determined by a political process. Statements by, for instance, Prime Minister Göran Persson indicate that a referendum will be held as early as next year. If the result were a “yes”, parliament would decide to send in an application to the European Commission and the ECB to examine whether we meet the convergence criteria. In connection with making a decision on application, Sweden would probably also have to take a position on participation in ERM2. The government has said earlier that if Sweden is to take part in stage three of EMU, it would be logical to first tie the krona to this exchange rate mechanism. The economic criteria are the inflation rate, long-term interest rates, exchange rate stability and the budget balance and debt in the public sector. Following this scrutiny, the European Parliament and Council of Europe would give their opinion on the Commission’s proposal and after this the ECOFIN Council would take a decision on whether Sweden could participate. If Sweden were accepted as a member of the Eurosystem, there would be negotiations on when membership could occur and at what exchange rate the krona would be fixed against the euro. Parliament decided as early as 1997 that Sweden should keep the door open for future membership by creating the highest possible level of readiness for action, by means of technical and practical preparations.