Just the reverse, I would say, in the light of quite a few years in the vicinity of decision-making in economic policy. Economic outlook in the coming years A suitable starting point for a discussion of the economic future is the October Inflation Report. Our assessment there assumed that international economic activity will tend to slacken but still remain relatively strong. We counted on GDP growth in the OECD area being 3.8% this year, followed in the next two years by 3.0 and 2.7%, respectively. Inflation would remain relatively low, partly in view of strong competition in the international markets. Growth in Sweden was judged to be 4% this year, 3.7% next year and 3.0% in 2002. Domestic demand growth would be relatively high for consumption as well as investment. A damper was expected, however, from an appreciation of the krona. A gradual increase in inflation was predicted, so that two years ahead the rate would be approximately in line with our target. As usual, we identified various risks in our forecast. One was the possibility of the oil price staying at a high level. We also considered that the exchange rate might be weaker than economic fundamentals in Sweden would warrant in the longer run. Another risk was that of higher wage increases. It was conceivable that the wage rise would be even higher than the annual rate of just over 4% we had assumed for the coming two years, due, for example, to far-reaching demands for compensation and parity.
If inflation is expected to be above the 2% target during this time horizon, the interest rate is normally raised and vice versa. This rule was formulated with a view to making policy more intelligible, to ourselves as well as to others. We also believed a rule of this kind would serve as a structure for decision-making and help to enhance confidence in monetary policy. In my opinion, the rule has served these purposes. It has contributed, not least, to a more structured discussion of monetary policy issues and thereby to a deeper understanding of the choices we have to make. Have we observed our rule? Judging from this chart, I would say we have (Chart 2). The chart shows the repo rate in practice together with the path indicated by the Riksbank’s inflation assessments. You will see that we have followed our forecasts fairly closely and thus adhered to our rule of action. Deviations have occurred, mainly in the early years with the inflation target; I believe they were largely connected with concern about the exchange rate.