Perhaps the most common problem mentioned is that investors will then seek assets with a higher yield, which also have a higher risk. One of many reasons for such behaviour could be that some portfolio managers are required to attain a minimum return on their portfolios. This behaviour risks causing an unwarranted rise in asset prices when interest rates are low.6  5  There is a lively debate on this question. One important contribution to the discussion is the Riksbank’s commission of inquiry into risks on the Swedish housing market (Riksbank 2011). The National Institute of Economic Research (2013) and Svensson (2013a) are examples of newer contributions to the debate, claiming that housing prices and household indebtedness do not comprise an evident problem. 6  See Rajan (2005). BIS central bankers’ speeches  5  Another possible problem with low interest rates is that the monetary policy stimulus can help weak companies to get along without having to deal with their problems. In this way, a necessary structural transformation in the economy may be postponed. There is also a risk that the stimulus will help the banks to struggle along with weak balance sheets, which will inhibit credit granting in the economy.7 The problems I have just mentioned nevertheless appear less relevant to current developments in Sweden. But I would like to mention two other potential problems linked to low interest rates, which I think justify the concern over the Swedish economy.
It is not even self-evident that inflation will return to the target level in the long run if monetary policy is too tight. If we are worried that a long period with a low repo rate will give rise to an unjustified upturn in housing prices and indebtedness, we should perhaps ensure we conduct a monetary policy that means we quickly move towards the inflation target, and that still works even if  8  BIS central bankers’ speeches  economic developments are less favourable than forecast in our main scenario. Such a monetary policy could entail cutting the repo rate now to increase inflation and then raising the repo rate slightly faster in the coming period when inflation accelerates (see Figure 7). Admittedly, preliminary assessments within the Riksbank, based on model calculations combined with empirical relationships, indicate that a large repo-rate cut now, followed by faster increases in the future would entail slightly higher risks linked to household indebtedness than if the repo-rate path advocated by the majority is followed. However, the difference in the risk outlook for these two alternatives is almost negligible.