From what I have said it follows that there should be a repo rate that is commensurate with stable inflation and a demand growth that matches the expansion of capacity while the economy is also balanced in other respects. It is around this level of interest rates that the actual repo rate ought to be varied as activity moves up and down. So what is the Swedish economy’s sustainable growth rate and what is the commensurate repo rate? The Swedish economy’s sustainable growth rate A simple way of estimating the potential growth rate is to add the figure for the trend rate of increase in labour supply to the growth rate for labour productivity. 1  BIS Review 13/2000  The latest figures, based among other things on demographic changes and labour force participation, point to an annual increase in labour supply up to 2008 of 0.5%.1 As regards labour productivity, most of the evidence suggests that the trend in the 1990s was higher than in the 1970s and 1980s. In the period 1974-93, for example, the annual increase in labour productivity averaged approximately 1.4%, while the average since 1994 is about 1.9%.
Mr Bäckström reports on the Swedish economy and monetary policy  Speech given by Mr Urban Bäckström, Governor of the Sveriges Riksbank and Chairman of the Board of Directors and President of the Bank for International Settlements, to the FöreningsSparbanken, in Malmö on 16 February 2000. *  *  *  The repo rate increases In order to understand why the Riksbank has raised the repo rate in two steps from 2.90% last November to 3.75% less than a fortnight ago, it is necessary to consider the situation in 1998. The mood at that time, in the global economy as well as in Sweden, was coloured by the Asian crisis, the suspension of Russian payments, the problems with the hedge fund Long Term Capital Management and falling stock-market prices. It was considered that in addition to direct problems, the financial crisis in the autumn of 1998 would have negative effects on real economic activity. Forecasters altered their assessments and the prospects for global output and inflation were revised downwards. Central banks around the world did likewise and the Riksbank was no exception. Instrumental rates were reduced in many countries. Between the early summer of 1998 and the spring of 1999 the Riksbank cut the repo rate by a total of 150 basis points, bringing it down from 4.40 to 2.90%. The actions of central banks probably mitigated effects of the various shocks.