However, the repo rate was cut further, to 1 per cent in December 2012. It then remained at this level for one year, until December 2013, despite low inflation and an inflation forecast that had been revised down substantially, as well as unemployment that seemed stuck at around 8 per cent. In December 2013, the repo rate was cut further to 0.75 per cent. During the period between December 2012 and December 2013, I felt that the consideration given to household indebtedness was preventing the further repo-rate cut that I considered justified. Others also lean, but under different circumstances We in Sweden are far from alone in feeling that rising indebtedness driven by rising house prices poses a threat to financial stability. Other central banks have also given explicit consideration to such threats when formulating their monetary policy. Of those countries that are comparable with Sweden in the sense that they are developed economies with inflation targets, Norway, Canada, Australia and New Zealand are the ones that can be said to have conducted a monetary policy that to some extent leans against the wind. Sweden does however stand out in that inflation has been clearly below the target in recent years, at the same time as unemployment has been relatively high.5  Policy Update published in April 2013 states that the monetary policy conducted “is expected to stimulate economic developments and inflation at the same time as taking into account the risks linked to households’ high indebtedness”.
The key question here is how to smooth out the impact of the volatility in energy and other commodity prices on the domestic economy in the short to medium term, while there is a heightened degree of uncertainty regarding financial and real factors. Introducing a fixed element into the sales tax on gasoline or other energy prices might be an effective method in dealing with this issue. In the case of Turkey, for example, there are two types of taxes on the retail gasoline prices. The first one is the VAT that is proportional to the price; the second one is the Special Consumption Tax (SCT) that is a fixed tax. The SCT forms a significant portion of the retail gasoline prices and attenuate the volatility of final prices that consumers face, since it is not a proportional tax. This tax structure not only smooths out the fluctuations in retail gasoline prices but also avoids the need for subsidies, discretionary choices and associated fiscal costs. This conference serves as a perfect platform to discuss alternative methodologies on these issues. Once again I would like to welcome you all to Istanbul and hope that we will address some of the challenges regarding commodity prices and the global economy in this meeting. Thank you. BIS central bankers’ speeches  3