But in the recently published Financial Stability Report we are nevertheless assuming, even in the main scenario, that the Swedish banks will face fairly substantial loan losses in 2009 and 2010. A large share of the losses, approximately 40 per cent, is expected to arise from operations in the Baltic countries and the rest of eastern Europe. But in the Report we also note that all of the major Swedish banks have sufficient capital to cope with the losses that will arise if the Riksbank's forecasts are correct. We also observe that the Swedish banks are well-capitalised in an international perspective. One cannot disregard the fact that there is great uncertainty over future developments in economic activity. When one has the task of safeguarding financial stability, it is natural preparing for situations where things go very badly. And when assessing the resilience of the financial system it is also of greater interest to study a more negative development than the one forecast. We have therefore investigated in our Financial Stability Report how the banks would cope with a scenario of a much weaker development than that considered most likely today. There we assume, for instance, that GDP in Sweden will fall twice as much as predicted in our main scenario forecasts for 2009 and 2010 in the Monetary Policy Update published in April.
We know from experience that the inflation outlook can change rapidly. During the late spring and summer of last year we were concerned over inflation being too high, even though this was mainly due to rising oil and food prices. Rising unit labour costs were also taken into consideration. Fears that high inflation expectations would become entrenched also formed part of the picture. We then raised the interest rate despite beginning to see signs of weaker economic activity in the future. The assessment was that this was necessary to attain the inflation target a couple of years ahead. When developments turned out differently, we had to quickly change our course. We are of course always prepared for situations like that. We are ready to act as quickly and as forcefully as is necessary, both to attain the inflation target and to carry out our financial stability responsibilities. Unconventional measures There have been many discussions on what the Riksbank could be expected to do if developments turn out weaker than we are now assuming. And our toolbox is not empty because the repo rate is so close to its lower limit. Put simply, the way the repo rate tool works is that the banks either borrow or buy Riksbank Certificates with a maturity of one week from the Riksbank at the price of the repo rate. In addition, there are what is known as daily fine-tuning operations between the Riksbank and the banks at an interest rate very close to the repo rate.