This downside risk is only partly balanced by a domestic upside risk to do with inflationary pressure and wage formation in Sweden. All in all, the balance of risks for inflation is accordingly on the downside. The Riksbank’s overall assessment today is that with the risk spectrum taken into account, inflation one to two years ahead will be approximately in line with the target, albeit somewhat on the low side. The most probable outcome in the years ahead continues to be that economic activity becomes stronger. Together with the difficulties in assessing the situation - not least on account of the fluctuations in the financial markets - this has led the Riksbank to opt at present for leaving the repo rate unchanged. But the financial market developments and their economic effects warrant close attention. The Executive Board therefore decided to hold an extraordinary monetary policy meeting at 1 p.m. on 14 November in order to make a renewed judgement. BIS Review 59/2002  3
Against this background, we expect price stability to be maintained over the medium term, thereby continuing to support the purchasing power of euro area households. As the transmission of monetary policy works with lags, we expect that our policy action will progressively feed through to the economy in full. Hence, with all the measures taken, monetary policy is providing ongoing support for households and corporations. Once the macroeconomic environment improves, the Governing Council will make sure that the measures taken are unwound in a timely fashion and that the liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term. By so doing, the Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations. Such anchoring is indispensable to supporting sustainable growth and employment and contributing to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead. As regards fiscal policies, the latest quarterly euro area data and developments in individual countries confirm a substantial deterioration of fiscal positions in 2009, which is projected to continue in 2010. In finalising their 2010 budgets and medium-term fiscal plans, governments must now substantiate their commitment to ensuring a swift return to sound and sustainable public finances in line with the Stability and Growth Pact. In particular, it is crucial that ambitious and realistic fiscal exit and consolidation strategies, underpinned by concrete structural measures, are put in place.