So, the fact that we disagree should be seen as a sign that everything is working the way it is supposed to. It would in fact be surprising if the entire Board supported every interest rate decision made. Unusually difficult to assess the situation The third thing I would like to point out is perhaps the most important. This is that the even vote is of course more than anything else a sign that it is unusually difficult to assess the current situation – there is a fine balance to be drawn. I think that it is important to say this as this is not really the picture that has emerged from the debate. Instead, an unchanged repo rate has most often been portrayed as the only reasonable and self-evident alternative. Even though I myself eventually came to the conclusion that the interest rate should remain unchanged, I must say that I did not feel that this was an entirely self-evident decision. The Executive Board thus decided by the smallest possible margin to increase the interest rate by 0.25 percentage points. Three main reasons were given for this. First, inflation has continued to increase. In July it reached the highest level measured since the mid-1990s and was far above the inflation target. The much-publicised revision of the CPI by Statistics Sweden last week does not significantly alter this picture, by the way, even though the figure for June is now higher than that for July. Secondly, inflation expectations are also still high.
Different measures paint slightly different pictures, but all of the measures are above the inflation target. Thirdly, cost pressures have  1  For a review of current research see, for example, Blinder, A., ”Making Monetary Policy by Committee”, an essay presented at the conference ”International Experience with the Conduct of Monetary Policy Under Inflation Targeting”, 22-23 July, 2008, Bank of Canada. 2  See, for example, Blinder, A. and J. Morgan, ”Are Two Heads Better than One? An Experimental Analysis of Group versus Individual Decision Making”, Journal of Money, Credit and Banking 37, 2005, 789-811. 2  BIS Review 113/2008  increased. This is largely related to the fact that growth in productivity has been surprisingly weak for some time. The assessment made by the majority was that an increase was needed to prevent price rises for energy and food from spreading to other areas – to prevent the high level of inflation from becoming entrenched. The increase is expected to help bring inflation back to a level close to the target within a couple of years. Resource utilisation is also expected to fall but to be roughly normal at the end of the forecast period. At the same time as the repo rate was increased, the repo rate path for the period ahead was adjusted downwards compared to the decision taken in July. This is partly because growth has slowed down more than expected in Sweden and abroad and partly because the price of oil and the prices of other commodities have fallen.