The problems I have seen are based on a combination of inflation having clearly undershot the target, the Riksbank’s inflation forecasts having been more optimistic than those of other analysts, the Executive Board’s repo-rate paths having indicated a tighter monetary policy than the market and analysts have expected and the repo-rate paths having been revised down time after time. I have said that in such a situation it is better to cut the rate immediately rather than continuing to present a repo-rate path that is not perceived by outsiders as entirely credible. However, these problems have become a little less important in recent months as other analysts’ forecasts of inflation and the repo rate have been revised up. Thirdly, it is not self-evident that taking into account household debt means setting a higher repo rate than we would otherwise have done. The current repo rate, 1 per cent, is undeniably low. In the long run, the repo rate will be raised to much higher levels. But we cannot raise the repo rate until we see that inflation has clearly begun to move towards the target of 2 per cent. And when this happens will of course depend on monetary policy. If we cut the repo rate now, inflation will rise faster towards the target. If the repo rate is left unchanged it will take longer before inflation begins to rise, and this in turn means that it will take a long time before the repo rate can be raised.
In our latest Financial Stability Report and Monetary Policy Report we conveyed clear messages, as to the need to prioritize initiatives that contribute to strengthening the functioning of the financial system and avoid those that could harm it. The Chilean economy is in the process of resolving macroeconomic imbalances and has the task of repairing the buffers that have allowed it to mitigate the impacts of external shocks in the past. For this reason, it is particularly important to prioritize those aimed at promoting savings, strengthening the resilience of financial systems, promoting innovation and financial inclusion. A properly regulated financial system contributes to financial stability and inclusion and is also critical to support economic development and the population’s well-being. 17