Commodity prices have also begun to fall, which reduces inflationary pressures not just in Sweden but also abroad. If this development does not reverse, it will make things easier for the central banks, as they will have greater scope to meet the slowdown in economic activity with monetary policy actions. I would like to take the opportunity here to talk about what we can and can't achieve with monetary policy. No one wants the economy to fall into a deep decline or a lengthy recession like the one we experienced in the 1990s. However, Sweden has dearly-bought experiences from the 1970s and 1980s when we tried to use fiscal and monetary policy to stabilise fluctuations in economic activity. These experiences were part of the reason why the Riksbank became independent and the inflation target was established. 13  Special analysis "Negative Productivity Growth: Causes and Implications for the Period Ahead", The Swedish Economy, August 2008, National Institute of Economic Research. BIS Review 121/2008  5  The problem with rising commodity prices is a result of high demand that has arisen after the long growth period the world has just undergone. Perhaps this problem has been aggravated by the fact that many countries subsidise food and energy. Now we are in a situation where some adjustment is probably needed. A stimulative monetary policy that allows inflation expectations to soar would possibly help the economy out of the current growth slump in the short term.
In February this year the interest rate was raised by a further quarter of a percentage point to 3.25 per cent. At the most recent monetary policy meeting on 3 May we decided to keep the repo rate unchanged. At the same time, our assessment was that the repo rate will need to be raised gradually, which we had also assumed earlier. Now we believe that it will need to be raised more than was anticipated in February. This is necessary so that inflation will develop in line with the target. The main reason why we need to revise our forecast upwards is the outcome of this year’s wage bargaining rounds. The central wage agreements have been slightly higher than we had earlier had reason to believe, given that unemployment is still quite high in Sweden. Some forecasters have believed in a higher interest rate path than we have predicted. However, this does not appear to be because their forecasts for wages or fiscal policy have differed substantially from those made by the Riksbank. I would also like to point out that so far there are no dramatic differences in our picture of current economic developments today compared with February. We will return to this in the Monetary Policy Report to be presented in June with a more detailed account of how we view the situation.