So there are sound economic arguments for an inflation target that is not lower than 2 per cent. To sum up, it is these considerations I have in my mind when I talk about the importance of keeping our eye on the ball. Basically, it is a question of constantly being very clear about the guiding role of the inflation target in the design of monetary policy. The lower bound of the repo rate is less than zero Regarding negative interest rates, I presented my own view on the matter in a speech around this time last year. 6 I think that the difficulties with negative rates are not so much a question of purely economic aspects, but rather of what is feasible according to social conventions and possible to create understanding for. For example, the biggest problem is probably not the one that is commonly highlighted, namely that the general public would choose to empty their bank accounts and only hold cash, as soon as the interest rate is negative. Holding savings in cash is, when it comes down to it, both troublesome and costly and given that most people in Sweden have started to abandon cash, it is not something that would seem particularly natural. The pain threshold here is probably relatively high, from a purely economic perspective.
Consequently, it is not “the tenths” themselves that are important – and they are of course even less important under more normal circumstances. But when confidence in the inflation target is at stake, even tenths can send signals and this is something I think one is well advised to consider. Let me stress that I of course believe that my colleagues on the Executive Board also take arguments like these into consideration. However, it can certainly be the case that we make different assessments of how important they are. This is natural and in a way the whole point of an executive board. What I am presenting here is my way of looking at things and my personal assessments. A necessary condition for maintaining confidence in the inflation target is, as I see it, that the monetary policy we conduct and plan to conduct means that we anticipate inflation being 2 per cent at least at the end of the forecast period we are considering. If the inflation forecast is not 2 per cent even in this time perspective, the monetary policy, on which our inflation forecast is based, is wrong and we must adjust it. But as I was just discussing, this is not always enough – it is not a sufficient condition.