This work is very important, but unfortunately will not mean that, as of now, there will never be any more crises. So what should we do to ensure that it takes as long as possible until the next crisis breaks out? To start with, it is important to develop the financial regulatory framework both in Sweden and abroad, so as to boost the resilience of the financial system. Work on this is currently in full swing, but it will take several years before we will be able to gain a clearer view of how such a new regulatory framework may look. However, regardless of how it may look, it will affect the conditions for monetary policy, one way or another. It is thus important for central banks to continually monitor and analyse changes in the financial regulatory system. The financial crisis has also emphasised the need to better incorporate the financial markets’ significance into the macroeconomic assessment that guides monetary policy. Future developments – the stable development of Sweden’s economy requires the repo rate to be raised The recovery of Sweden’s economy after the financial crisis has now made a lot of progress. Output has largely returned to the pre-crisis level, and unemployment is in retreat. Our assessment of developments is that the high growth rate in the economy will gradually decrease in the period ahead and will approach normal levels. Underlying inflation is increasing and will be close to target by the end of the forecast period (see Slide 10).
Should this be the case, it may not be necessary to increase the repo rate as rapidly. An alternative scenario in February’s Monetary Policy Report examines this possibility. But let me clearly emphasise that the Riksbank has no target for the level of the exchange rate. Monetary policy is governed by the inflation target, even if the exchange rate is an important determining factor for inflation. Secondly, as I mentioned, commodity prices have increased very steeply over the last year (see Slide 11). To a certain extent, although far from completely, this price rise has been counteracted by the appreciation of the krona. If commodity prices increase as a result of rising demand, this price increase will probably be more permanent than one resulting from supply shocks – that is factors obstructing output. 5 It seems likely that the strong economic development of the emerging economies – with increased demand for intermediate goods as a result – can largely explain the increase of commodity prices over the last year. The very recent unease in North Africa has contributed to rising oil prices and has more of the character of a supply shock. All in all, the increase of commodity prices may have greater contagion effects on prices in the rest of the economy than we have estimated. Thirdly: even if unemployment has decreased over the last year, it is still relatively high. Despite this, a certain degree of labour shortages can already be discerned in several sectors.