In addition, low interest rates and, in general, more accommodative financial conditions naturally have a positive impact on economic activity and employment and help stimulate the flow of credit, thus also driving up banks’ profitability. Indeed, this is the key rationale behind an expansionary monetary policy such as that implemented in the euro area in recent years. As an illustration of these effects, according to various ECB  12/29  studies2 and the Banco de España’s own estimates, the set of monetary policy measures adopted since mid-2014 will have an overall impact on real GDP growth in the euro area of around 2 pp in cumulative terms between 2016 and 2020. Moreover, these estimates do not include the measures agreed in September which, according to the Banco de España’s estimates, could add up to 0.4 pp in cumulative terms to euro area GDP growth by 2021. In any event, it is fair to say that there is evidence that, since the ECB’s deposit facility rate fell below zero, negative surprises in short-term interest rates have been accompanied by falls in European banks’ stock market valuations. Given the endogenous nature of the monetary policy response to projected economic developments, this response by bank share prices to monetary surprises may reflect, on the one hand, the negative impact of less favourable projections for the future macroeconomic setting and, on the other, the market view on the direct negative effect of further interest rate cuts on banks’ future profitability against a backdrop of a prolonged period of negative rates.
But there is much to suggest that fiscal policy as early as next year that is, the policy which is being decided this autumn - will be important in this context, at least if the timing that is now being discussed, with full participation in 2005 or 2006, is achieved. Thus, more and more of stabilisation policy's burden is transferred to fiscal policy. But this does not mean that the Riksbank should refrain from using the scope for monetary policy that may exist during the ERM2 period. It is up to the Riksbank to do what is possible to make Sweden's accession to the monetary union smooth and stable. Low and stable inflation in Sweden is one important element here; another is a stable exchange rate. Sweden must fulfil the convergence criteria in both these respects. In practice this means that there may be grounds for continuing to produce inflation forecasts and to publish Inflation Reports in much the same way as at present. We should also do what we can with the interest rate to direct inflation onto our target. But the closer we come to adopting the euro, the smaller will be our repo rate's effect on longer term interest rates. That is because as the entry date approaches, the Swedish yield curve will be increasingly determined by European interest rates. BIS Review 65/2002  5  The fact remains that exchange rate stability is one of the convergence criteria for Sweden's full participation in the monetary union.