This has been clearly illustrated by the financial crisis. There is concern that these measures, which also lead to an expansion in the central banks' balance sheets, entail an increased risk that inflation in future will be too high. The question is thus whether the economy will have a surplus of liquidity when the situation begins to normalise, and whether this could lead to increased inflationary pressures. The answer to that question is no. The measures taken by the central banks now can be regarded as a response to the tightening on the market. One can simplify and say that the central banks are trying to counteract or neutralise the markets' tightening so that the transmission channel can begin functioning more normally. These measures will only continue as long as the markets cannot function on their own. Once the financial crisis has waned, the Riksbank will not renew the special measures required during the crisis. Our loans are relatively short-term, with maturities of between 3 and 12 months. The loans will therefore mature gradually when the special lending facilities are phased out. When the economy then recovers, monetary policy will be adjusted according to the circumstances prevailing at the time. The policy rate can be raised in large steps if this were to prove necessary. In the most recent Monetary Policy Report you can see that we are expecting a relatively rapid increase in the repo rate towards the end of the forecast period. Concluding comments We have a historically low repo rate at the moment.
But as it normally takes a while before an upturn in economic activity has an impact on employment, it is very possible that the Riksbank will need to raise the repo rate in a situation where unemployment is still high. This is also something we are assuming in our most recent forecast. There is then a risk that unreasonable requirements will be made of monetary policy. It will then be important to bear in mind that the primary objective of monetary policy is to create good long-term conditions for all participants in the economy. It is important that we have an active discussion of the Riksbank’s policy. But for the discussion to be fruitful it must be based on realistic expectations of what monetary policy can and cannot achieve. Sweden is a small, export-dependent economy and when economic activity abroad suddenly falls, monetary policy cannot prevent negative effects from this on our economy. But we can alleviate these effects. As the financial markets are integrated, we cannot prevent an international financial crisis having effects here, too. Then we must use other tools, parallel to our interest rate policy, to make the financial system function in the best possible way given the circumstances. This is what we have done throughout the autumn and we will continue to do this as long as is necessary. BIS Review 38/2009  7