One way of illustrating this is to look at the Economic Tendency Survey of the National Institute of Economic Research, which shows the households’ and companies’ aggregated expectations for the period immediately ahead. All in all, this survey has been at a low level throughout the year, which indicates that Swedish companies and households are now less confident about the future (see Figure 8). 2  BIS central bankers’ speeches  The Swedish economy has coped relatively well… Over the last 12 months, growth in Sweden has thus been much more subdued than during the strong recovery in 2010 and early 2011. Sweden has nevertheless withstood the problems abroad relatively well, and the Swedish economy continued to grow at a good rate during the first six months of this year. 1 This is partly because the development of domestic demand has been relatively stable. There are several reasons why Sweden has coped so well. Sweden’s stable public finances, for example, have meant that fiscal-policy consolidation, which has otherwise dominated the economic-policy agenda in several other countries, has not been necessary in Sweden. Competitiveness has also developed well. This can be seen very clearly if we look again at Figure 6. There are also a number of explanations for this positive development. We have had a period in which productivity grew very strongly in Sweden for several consecutive years, inflation has been low and stable and pay formation has improved significantly compared with the period prior to the introduction of the inflation target.
Financial stability is a precondition for monetary policy being able to work as intended, while monetary policy can affect financial stability. It is therefore rather natural to take the risk of financial imbalances into account in monetary policy. However, there must be a reasonable connection between alternative regulations and monetary policy. Regulations can be described as an indirectly-targeted means of raising or lowering interest rates in a certain social sector. If the regulations deviate significantly from the monetary policy that is being conducted, distortions and contradictory messages will arise after a while in the financial sector. New control problems will emerge, for example through the appearance of shadow banks or through excessive borrowing abroad. As is so often the case, it is a question of finding the right balance. A low repo rate is justified, but how low? The economic situation over the last 12 months, that is the weak development of economic activity abroad and the low inflationary pressures, has made it necessary to gradually lower the repo rate in order to enable inflation to rise towards the target of 2 per cent and to normalise resource utilisation (see Figure 1). This means that we have a very low repo rate today, which is also reflected in lower interest rates for households and companies (see Figure 10). Determining how low the repo rate should be entails balancing many different factors against each other.