Given these factors, I entered a reservation against the decision, preferring a much lower repo-rate path than the one proposed by the majority. At the next monetary policy meeting in July, there will be a new assessment, with new four-panel figures. 5  So-called mean squared gaps are also shown, although they are not needed in this case to judge which of the alternative repo-rate paths leads to the best target attainment. 4  BIS central bankers’ speeches  Objections to monetary policy focusing on inflation and unemployment The Sveriges Riksbank Act, the government bill proposing it and economic analysis thus all provide strong support, in my opinion, for monetary policy aiming to stabilise inflation around the target and unemployment around a long-run sustainable rate. At the same time, it is clear that the majority of Executive Board members have conducted a monetary policy that aims to do something other than this. As I discuss in detail in Svensson (2011), the majority of the Executive Board began to raise the repo rate in July 2010, despite the forecast for CPIF inflation being below the target and the forecast for unemployment being above any reasonable long-run sustainable rate. In recent years, according to the forecasts made at the time of each monetary policy meeting, a lower repo-rate path than the one chosen by the majority would have led to better target fulfilment for both inflation and unemployment.
Although only a minority of households may be credit constrained they are probably sufficient  4  Young, G (1996), “The influence of financial intermediaries on the behaviour of the UK economy”, NIESR Occasional Paper No 50. 5  This is discussed in detail in the Bank’s memorandum to the House of Commons Treasury Committee’s inquiry into “The Monetary Policy Committee of the Bank of England: ten years on”, Quarterly Bulletin, 47(1), 2007Q1, 24- 38. 6  Credit Conditions Survey, http://externalboeweb/publications/other/monetary/creditconditions.htm  BIS Review 7/2008  3  in number to depress household spending somewhat, possibly reversing a little of the decline in the saving ratio seen since the early 1990s (Chart 9). In a similar way a tightening of corporate lending conditions will affect some companies’ investment. The Deloitte CFO survey taken in early December finds that 20% of firms expect the recent credit market events to have a negative impact on their capital spending in 2008. 7 This tightening of credit conditions would be exacerbated by any further weakening in the financial position of banks due to a slowdown in the wider economy. Slower growth and a rise in unemployment in particular would lead to higher loan defaults. There are signs that this is already happening in consumer lending in the US. Weakening property prices would reduce the amount that lenders could realise in the event of default.