Then I will look at how monetary policy in Sweden is constructed in principle and conclude with some remarks on the current situation. In that Sweden will be outside the euro area initially, our economic policy will be constructed to fulfil the goals that are set up in Sweden. These goals are based in turn on our domestic priorities together with the commitments we have as a member of the European Union. To a large extent, Sweden’s priorities are the same as the EU’s: implement an economic policy constructed for stability and low inflation, thereby creating conditions for a good development of prosperity. Participation or otherwise in the monetary union does not affect the need for a balanced economic policy. Monetary policy aimed at price stability A political majority has stated that membership of the European exchange rate mechanism, ERM, is to be seen as a preliminary step towards participation in the monetary union. Thus there are reasons for supposing that the question of ERM membership will not be topical until the issue of future EMU participation has been resolved. Meanwhile, the Riksbank will continue to operate with a flexible exchange rate regime and an explicit price stability target for monetary policy. Here it should be underscored that experience to date indicates that this regime is working well. From the beginning of 1999 the Riksbank’s present independent position will be formally embedded in law.
To date, however, the upswing has been accompanied by subdued price movements. This mainly reflects a number of favourable transitory effects but there may also be signs of a somewhat lower inflation propensity. The strength displayed by productivity may perhaps enable the Swedish economy to expand somewhat faster without immediately generating inflationary pressure. But it is still too early to form a more definite opinion on whether the productivity trend has changed. It is now important that incoming statistics are still followed closely and assessed. As I just said, there is no reason at present to alter the repo rate. BIS Review 35/1998  ˝