If one looks at the estimates of the determinants of indebtedness used as a basis for our forecasts, one sees that the effect of the repo rate on households’ debt ratios (that is, their debts in relation to disposable income) is very small.12 A repo rate that is 0.25 percentage points higher during one year is expected to reduce the debt ratio by at most 0.3–0.4 percentage points (see Figure 4). 10  For example, in November 2010 Anders Borg warned of the risk that a housing bubble would build up, comparing developments in Sweden with those in Ireland and Iceland, and emphasising the importance of putting an early stop to it (Borg, 2010). The Liberal Party then proposed cutting the deductions for interest payments in January 2011 (Hamilton, 2011). 11  Finansinspektionen (2013). 12  See Laséen and Strid (2013) and Sveriges Riksbank (2014b). BIS central bankers’ speeches  7  Figure 4. Household debts Percentage of disposable income 182  182 Lower repo rate 2013 Main scenario  180  180  178  178  176  176  174  174  172  172  170  170 12  13  14  15  16  17  Note. The experiment with a lower repo rate in 2013 assumes a repo rate cut from 1 per cent to 0.75 per cent at the monetary policy meeting in February 2013 and a repo-rate path that from December 2013 follows the path published in December 2013 and again in February 2014.
During this period the krona strengthened by around 10 per cent and we were forced to revise our exchange rate forecasts in a stronger direction on several occasions. One possible explanation is that the forecast did not fully reflect the large interest rate differential that monetary policy entailed. One consequence of the strong development of the krona is that Swedish import prices have fallen in absolute terms and fallen more than other countries’ import prices (see Figure 2a). This puts downward pressure on inflation. Another consequence is that the international competitiveness of domestically-produced goods and services deteriorates. This could be reflected in lower sales volumes and, to the extent the firms instead prefer to guard their market shares, lower price mark-ups. A strong krona, combined with weak demand from abroad, has meant that the situation for the export industry has been particularly hard pressed, which has probably led to low wage increases in the manufacturing sector. As this sector is traditionally a wage leader, the low wages may have spread to the rest of the Swedish economy and in this way have contributed to the low inflationary pressures. Figure 2a. Figure 2b.