However, no thorough analysis has been made of whether house prices and indebtedness entail problems or have any significance for future inflation and resource utilisation. At the same time, widespread research points to the policy rate being an unsuitable instrument for this, as it has small effects on house prices, but sizable effects on production, jobs and unemployment.   Recently, monetary policy appears to have been aimed at slowing down growth in GDP, and thus the recovery from what is called the Great Recession. This is because the motivation given for the repo rate raises has been that growth in the  BIS Review 158/2010  1    Monetary policy also appears to have strived, through references to the abnormally low repo rate, to normalise the level of the repo rate. This is despite the fact that the repo rate should not be a target variable for monetary policy, but merely an instrument without any inherent value.   The repo rate path in the main scenario is now far above market expectations, the market repo rate path according to implied forward rates. 1 The intended monetary policy – the Riksbank’s repo rate path – is thus much tighter than the actual monetary policy – the market repo rate path. The fact that the market repo rate path differs from the Riksbank’s repo rate path means that the intended repo rate path is not credible. The more expansionary actual monetary policy has probably contributed to the strong growth and the recovery.
There is nothing to say this would be the case, neither in the Sveriges Riksbank Act or its preparatory works, nor in the booklet “Monetary policy in Sweden”. Instead, I believe that the repo rate should in all situations be set so that inflation and resource utilisation are stabilised as far as possible, regardless of whether this requires a high or a low repo rate and regardless of whether there is a crisis or not. A repo rate path way above market expectations The repo rate path is much higher than market expectations according to implied forward rates. The repo rate path corresponds to much higher market rates than the current ones. If the repo rate path were to become credible, it would lead to a significant increase in long interest rates and a large appreciation in the Swedish krona, which would risk strangling the recovery in exports and GDP, raising unemployment and lowering inflation. The reasoning can be explained with the aid of some figures. In Figure 7 the red curve shows the repo rate path in the main scenario, and the blue curve shows implied forward rates according to Swedish market rates. The curves gave been extrapolated beyond the usual three-year horizon, to a five-year horizon. 6 Figure 8 shows the yield curves corresponding to the curves in Figure 7. The yield curves show short and long interest rates, more precisely a zero coupon rate as a function of maturity according to the horizontal axis.