Although the repo rate was cut to 0.25 per cent in 2009, it has been higher than this since summer 2010. The problem is rather that it may be desirable in the future to stimulate the economy further, for instance, if the economic recovery comes to a halt. The scope for further cuts in the repo rate may then be limited. The credibility of the inflation target could be impaired Finally, it is a problem if monetary policy and the Riksbank start to lose credibility. The value of money in modern economies is entirely based on expectations. Firmly-anchored inflation expectations and confidence in the central bank’s actions therefore comprise the basis for monetary policy. The inflation-targeting policy has successfully built up this credibility by communicating a clear overall target – a particular inflation rate. It has also become possible to gradually give greater consideration to the stability of economic activity as credibility has accumulated, although the primary target has become somewhat less clear as a result of this flexible inflation-targeting policy. However, monetary policy can hardly maintain its credibility if the inflation rate deviates from the target for too long. One question that has been discussed frequently in the wake of the recent financial crisis is whether central banks should use their policy rates to try to mitigate the credit cycle.14 Monetary policy could possibly contribute to this type of stabilisation for a  would have been if inflation had averaged two per cent during this period.
Low demand abroad contributes to low demand in Sweden, too. And low price increases abroad contribute to low import prices at a given exchange rate. However, this does not mean that monetary policy lacks the ability to counteract these developments. I usually think of this as a rowing boat in a strong current. If we do not row, the current (global developments) will determine what direction the boat moves in. But if we row, we have a better ability to get where we want to go, particularly if we try to keep away from the parts of the water where the current is strongest. The monetary transmission mechanism is usually divided up into different channels (see Figure 6).20 The channel most often mentioned is probably the interest rate channel. A lower interest rate makes it more attractive to consume and invest. This increases demand in the economy. And in the long run, the higher demand means that prices and wages rise, that is, inflation increases. In an economy like Sweden’s, which is so dependent on international developments, the exchange rate channel probably has greater importance, at least for the development of inflation. An (unexpected) repo rate cut means that the krona weakens. The weaker krona leads to an increase in demand for Swedish goods at the cost of foreign goods. In addition, there is a direct inflation effect that arises when imports become more expensive as a result of the weaker exchange rate.