The global recovery also increases the need for investment in the business sector and contributes to stronger growth in investment. The demand for housing remains strong, which helps maintain the level of housing investment. All in all, the increasingly strong demand, both domestic and international, means that GDP growth will be higher than the historical average over the coming years, see Figure 3. Good prospects for inflation in Sweden to continue to rise Inflation in Sweden is still low, just like in many other countries, see Figure 4. However, CPIF inflation excluding energy has been rising for some time and several different indicators point to it continuing to rise. The ever-stronger global economy leads to both higher international prices and higher demand for Swedish goods and services. Domestic demand also becomes higher and contributes to rising price pressures. The weakening of the Swedish krona over the past year has meant that imports of goods and services has become more expensive, which tends to increase consumer prices. The weaker exchange rate has not yet had a full impact on prices yet, either. Import prices are expected to rise further for a time before the contribution to higher inflation from the exchange rate wanes. 2  BIS central bankers’ speeches  A more expansionary monetary policy supports the upturn in inflation The Riksbank has implemented strong measures to reduce interest rates in general in the Swedish economy and thereby make monetary policy more expansionary. The repo rate has been cut to negative levels.

Other drivers of the turmoil included regulation and bank internal risk management limits, as well as concentrated reserve holdings (with a few banks holding large amounts of reserves). Despite the lack of contagion to the euro area in this episode, it is a relevant lesson to consider for future euro area monetary policy normalisation (while bearing in mind that concentration of reserves in the United States is structurally higher than in the euro area). [19] History can provide an interesting perspective and the paper by Anderson, Chang and Copeland (2020) featured in this conference examines the effects of central bank liquidity provision during the 1918 Influenza Pandemic; see Anderson, H., Chang, J.-W. and Copeland, A. (2020), “The Effect of the Central Bank Liquidity Support during Pandemics: Evidence from the 1918 Influenza Pandemic”, Working Paper. [20] For a model in which the distribution of excess liquidity among banks matters for the money market dynamics see Afonso, A., Armenter, R. and Lester, B. (2019), “A Model of the Federal Funds Market: Yesterday, Today, and Tomorrow,” Review of Economic Dynamics 33, pp. 177-204. [21] For an analysis of scarcity effects see Arrata, W., Nguyen, B., Rahmouni-Rousseau, I. and Vari, M. (2019), “The Scarcity Effect of Quantitative Easing on Repo Rates: Evidence from the Euro Area”, Journal of Financial Economics, 137(3), pp. 837-856; and Corradin,  https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201123~8d9573b1b1.en.html  6/7  24/11/2020  Shifting tides in euro area money markets: from the global financial crisis to the COVID-19 pandemic  S., and Maddaloni, A.