If the bank system instead has a deficit, as was the case just over a year ago, then the Riksbank will implement what are known as repos every week with a week’s maturity. This means that the Riksbank buys securities from the banks with a simultaneous agreement that a repurchase will be made one week later and where the interest rate is the repo rate that has been decided. Secondly, the Riksbank carries out what are known as fine-tuning transactions every day to smooth the daily fluctuations in the bank system’s regular payments. The banks can invest money in the Riksbank overnight at an interest rate of 10 basis points below the repo rate, that is, at present 0.15 per cent. This also assumes that the bank system as a whole has a surplus towards the Riksbank at the end of the day. If they instead have a deficit, the banks can borrow money from the Riksbank overnight at a rate that is 10 basis points above the repo rate. The fine-tuning is normally very small, but during the crisis it has grown to entail very large amounts. Thirdly, there are so-called standing facilities. The banks have the right to borrow from the Riksbank overnight at a lending rate that is 50 basis points higher than the repo rate, and the right to invest surplus in the Riksbank at a deposit rate that is 50 basis points lower than the repo rate.
Some business costs, such as insurance, will rise, but that should be at least partially offset by the sharp fall in oil prices. RPIX inflation rose briefly above target in August, but fell back to 2.3% in September. We are just starting to put our next formal inflation forecast together, and you will be able to see the results of that exercise in the November Inflation Report. At this point, I know you would wish a crisp conclusion and some indication of where I think rates should move in the future. Some of you may even think you have detected clues in what I have said as to where I think rates should go. If you have, though, that would be an over-interpretation. There are, I think, clear downside risks. The world economy may slow further if adverse confidence effects persist. Spending which is currently delayed may be cancelled. And the labour market may begin turning more decisively in the UK. But for the moment these risks need to be weighed against the continued strength of domestic demand. Of course, if we are to meet our inflation target, a strong domestic economy will be needed to offset the weakening influence of overseas markets. We have cut interest rates by 150 basis points since the start of the year in part to achieve this, and the full effect of these reductions have still to come through.