This is necessary to ensure a balanced economic development and an inflation rate in line with our target. Our repo rate forecast is exactly that – a forecast, not a promise. But it is nevertheless important that anyone borrowing money to buy a home or for other reasons should include a sufficient margin, taking into account that today's low interest rates will not last for ever. Let me linger a bit with the housing market and interest rates as these subjects have much discussed recently. BIS Review 138/2009  3  Monetary policy and house prices One issue that has been taken up, not least in the media, is that the policy we are now conducting could possibly contribute to a further rise in house prices, despite the weak economic activity. This could in turn increase the risk of imbalances arising in the housing market. It is true that the Riksbank’s policy, by affecting interest expenditure, has significance for the way housing prices develop, although many other factors are also important. But the policy we are currently conducting is what we consider to be necessary to attain the inflation target and to provide sufficient support for the recovery in the Swedish economy. We cannot adapt monetary policy on the basis of individual markets as long as we do not regard this as something that affects our ability to meet the inflation target and to safeguard financial stability. But this does not mean that we do not care about house price movements.
But we are not there yet. How shall we keep our balance in the future? In a financial crisis most of what is not built on stable foundations and does not have a robust structure is washed away. But when the situation has calmed, we have the chance to build up something new that will work better than that which failed the trials. We have this chance now. We must take part in the change work Keeping our balance once we have landed on our feet will require reforms with regard to legislation and supervision. Difficult and important challenges lie ahead of those of us who work with these issues – the central banks, the financial supervisory authorities and the legislators. Here Sweden must take on the challenge and play an active role in the international discussion. And it is necessary to act quickly. The reform work has already begun. Within the EU a new supervisory structure is being built up with regard to banks, insurance, securities and systemic risk. The new body, the European Systemic Risk Board, ESRB, will play an important role in this. Change is required in a number of different areas. The most recent crisis has demonstrated how a liquid market can very quickly dry up and become illiquid under certain conditions. Tougher rules are required regarding liquidity and the buffer that banks and credit institutions need to be able to withstand shocks. Further consideration is required here before we find a good solution.