We will receive further clues as to the current state of the economy before the next monetary policy meeting in April and will then review how this new information affects monetary policy. As I said earlier, in the slightly longer term the Riksbank’s latest forecast is that there will be a gradual recovery in the euro area and the global economy following a weaker 2012. This will of course affect Sweden too. It is expected that resource utilisation will increase, the rate of wage increases will accelerate and underlying inflation will gradually rise as growth improves. The latter is illustrated in Figure 6. BIS central bankers’ speeches  7  Figure 6. Gradually rising inflationary pressures The CPI, CPIF and CPIF excluding energy, annual percentage change 5  5 CPIF excluding energy CPIF  4  4  CPI  3  3  2  2  1  1  0  0  -1  -1  -2  -2 06  08  10  12  14  Note. The CPIF is the CPI with a fixed mortgage rate. Sources: Statistics Sweden and the Riksbank  Low real repo rate for some time to come We will need to gradually tighten monetary policy when inflationary pressures and resource utilisation increase. The Riksbank’s repo-rate path from February therefore indicates repo-rate increases during the course of 2013 and 2014. Nevertheless, this forecast still means that monetary policy will remain highly expansionary in the years ahead.
While there is a consensus about these positive effects, experience has shown that financial openness modifies the balance of risks at the macroeconomic level: •  first, it may reduce some risks, for instance, by decreasing the correlation between investment and savings;  •  second, it may nevertheless increase other risks: for instance, greater competition in the banking system may prompt strong credit growth with a loosening of credit standards, as domestic banks try to maintain their profits and market shares;  •  third, it may even create new risks, for instance through financial contagion, if risk appetite for emerging markets suddenly reverses, given the prominent role played by hedge funds in cross-border investments and the sudden shifts in their asset allocations. In this regard, the Banque de France recently published a special issue of its Financial Stability Review devoted to Hedge Funds, which may be of interest to the RBI (www.banque-france.fr). In contrast with the French experience which took place in the 1980s, the Indian process of financial liberalisation takes place in a context of intense globalisation and accelerated innovation. It is gradual but successful and it is no surprise that India was one of the first countries to participate voluntarily in the IMF Financial Stability Assessment Program (FSAP). In my view, the progressive and transparent character of this process is fundamental to guarantee that a country reaps the full benefits of its integration into the world economy.