It is always misleading to draw conclusions from individual observations, as temporary factors can have a major effect. However, price increases may also be due to the fact that the utilisation of resources or propensity for inflation have been slightly higher than we had assessed earlier. There is every reason to increase vigilance in this respect. The rapid price rises in parts of the services sector give particular cause for concern. There is every reason to increase vigilance over the next few months with regard to price signals from the market. What significance does the krona have? I thought that in this context I would spend a little more time on the development of the Swedish krona. When the krona is undervalued, as it is today, this tends to stimulate exports, which raises total demand and increases inflationary pressure. At the same time, import prices become higher in Swedish krona. The development of the krona thus affects inflation in various ways and is therefore of interest to the Riksbank and to monetary policy in the same way as other factors that affect inflation. On the other hand, the Riksbank has no target for the krona exchange rate, as was the case prior to 1992, when monetary policy was aimed at a fixed exchange rate rather than price stability. However, I think, as do many others, that the krona is currently very undervalued.
There could also be reason at some point to indicate that the market's pricing has moved significantly out of the region considered reasonable. For instance, this was the case, as I understand it, when the ECB intervened last autumn. In these cases the central bank can take action to "nudge" or reinforce a trend in the market without actually establishing any ceiling or floor. In my opinion, however, one should be restrictive in the use of such interventions. If the trend should turn and move in the opposite direction, the intervention might do more harm than good. Is it good for Sweden if our currency is undervalued over a long period of time? All experience indicates that this is not so. Although an undervalued currency gives the export industry and importcompeting industry a competitive advantage, which may sound positive in the short term, it reduces competition pressure and in the longer perspective it delays the structural transformation necessary when the exchange rate eventually returns to a balanced level. At the same time, the import industry has an uphill struggle, which leads to companies being wiped out in this sector that would have not have collapsed with a correctly valued currency. In addition, major fluctuations in themselves have a subduing effect on developments as the risks increase on all international transactions. This can be counteracted to some extent through hedging, but hedging also has a price that rises as uncertainty increases.