We can note that the real repo rate is presently below zero, and according to the Riksbank’s forecast it is not expected to be above zero until the end of this year. If the forecast proves correct, the real repo rate will have been negative for a two-year period – this is very unusual in an historical perspective. The Riksbank’s assessment is that a long-term normal level for the real repo rate is around 2 per cent. 9 Seen from this perspective, the repo rate path thus indicates a very expansionary monetary policy. We have previously seen that in April the market was expecting a lower nominal repo rate in relation to the Riksbank’s forecast. Figure 6 shows that this also appeared to apply to the real repo rate. Figure 6 The Riksbank’s real repo rate forecast Per cent  Note. See footnote 8 for a description of the calculation of the real repo rate expectations. Sources: Reuters EcoWin, TNS SIFO Prospera and the Riksbank. 8  The real repo rate forecast is calculated as a mean value of the Riksbank’s repo rate forecast for the coming year minus the inflation forecast (CPIF) for the corresponding period. Prospera’s interest rate and inflation expectations are based on surveys carried out on 28 April and 28 April–7 May respectively. Interpolation has been used for the interest rate and inflation expectations to produce the expected repo rate for the coming year and inflation expectations for the corresponding period.
5 I will not go in to it here, but merely note that a majority of us on the Executive Board has regarded the current repo rate as in practice being the lower bound. This zero interest rate problem received much attention in the academic world in connection with the Japanese central bank cutting its policy rate to zero as a result of the economic stagnation in the 1990s. One of the possible solutions if a central bank has cut its policy rate to its lower bound, and wants to cut it further, is to promise a policy rate around zero for a long time to come. Over time this would have a similar effect to cutting the interest rate to below zero and then raising it to above zero. The repo rate path facilitated communication During the financial crisis, lessons from this research became surprisingly topical for a number of countries in addition to Japan. The repo rate path fulfilled a central role here, as it enabled the Riksbank to make clear its intentions for monetary policy during an uncertain situation. When the Riksbank cut the repo rate to 0.25 per cent in July last year, the repo rate path signalled a low repo rate for a long period ahead. I believe this gave us an advantage over many other central banks, who tried to use purely verbal methods to signal that their policy rates would be low for a long time. Credibility plays an important role in monetary policy.