The interest rate decision in September Let me move on to the stance I took at the most recent monetary policy meeting around a month ago. I, like the rest of the Executive Board, then voted to raise the repo rate by 0.25 percentage points. At the same time, my assessment was that the forecast for the repo rate that we made in June still appeared reasonable. Today I shall return to why I made this assessment. Increased uncertainty abroad… On the whole, my view in September was that international growth was good and had not changed significantly since June. But this does not prevent the view of growth in some individual countries having changed in important respects. In September our assessment was that growth would be lower than we had expected in June, in the United States in particular, but also in Europe. At the same time, developments were slightly stronger in a couple of our neighbouring countries and in several emerging markets. However, the international risk outlook had changed gradually in connection with the rising unrest in the financial markets. The change in the risk outlook largely originated in the United States. There the problems in the housing market had worsened and according to several statistics house prices in the United States fell on average, measured as an annual change. The question we asked ourselves at the September meeting was to what extent the problems would spread and slow down activity in the rest of the US economy.
We will have a better internal base for making decisions. In addition, if we manage to succeed in communicating how we see the driving forces behind economic developments and also the objective and effects of monetary policy, it will also be easier for others to assess how new information will affect the future development of the repo rate. If it becomes clearer to the general public and financial market agents how we view future interest rate developments, this will give us better tools for influencing expectations of the future repo rate. By affecting expectations of short-term interest rates, we as the central bank can also indirectly affect interest rates with a slightly longer duration, which in turn increases the effect of monetary policy. As I said, monetary policy largely works by influencing expectations of future repo rates. When we based our forecasts on market expectations of the repo rate we could only indirectly express our view of the interest rate path by commenting on market pricing. For several reasons this was not very clear. One reason is that there is no clear-cut method for measuring expectations of the repo rate on the basis of market pricing. Different securities differ from one another with regard to duration, credit risk and liquidity, which makes the calculations complicated. Different calculations give different results without any of them being clearly better than the others. Another reason for the lack of clarity was that market expectations could change quickly.