The European Central Bank has cut its policy rate from 4.25 per cent in autumn 2008 to 1.25 per cent and the Riksbank has cut the repo rate from 4.75 per cent to 0.5 per cent. A number of other central banks have implemented similar monetary policy easing with the aim of stimulating demand and alleviating the repercussions of the financial crisis on production and employment. In addition to the interest rate cuts, some central banks have implemented what is known as unconventional measures. The purpose has been to secure the supply of credit and to counteract the threats to financial and macroeconomic stability. The central banks have contributed large liquidity injections, that is, lent money to the banks against collateral. Several central banks have also provided emergency liquidity assistance to individual institutions. The Federal Reserve, the European Central Bank and a number of other central banks have also lent money to other central banks through what are known as swap agreements to increase the access to foreign currencies in some other countries. Governments have offered guarantees and capital injections to reduce the risk of further bankruptcies in the domestic banking sector. Another important measure to reinforce confidence in the world economy is the decision at the G20 meeting in London at the beginning of April to increase the IMF’s resources to provide assistance to emerging economies experiencing problems. The measures taken by central banks and governments around the world so far have contributed to reducing the pressure on the interbank markets.

As the banking sector is a very important part of the way monetary policy affects the economy, it is essential to closely follow developments in the credit market. Indirectly it also means that it is important that the Swedish banks attend to their problems in the Baltic both forcefully and quickly. This is to avoid the domestic transmission mechanism being disturbed by the international uncertainty. Here monetary policy and financial stability merge. The Swedish National Debt Office and Finansinspektionen (the Swedish financial supervisory authority) have also taken measures to alleviate the financial crisis. The Government has raised the state deposit guarantee and extended it to cover all types of deposits in accounts, it has introduced a guarantee programme, established a stability fund and decided on means of capital injections to the banks. Large fiscal policy stimulus packages Governments in many countries have presented substantial fiscal policy stimulus packages, which have been supported by the countries’ parliaments. Large packages have been presented in China, Japan and the United States, but there is substantial fiscal policy expansion even in a number of European countries. These include Sweden, where there is greater scope, in the form of strong public finances to begin with, than in most other countries. However, it is difficult to determine exactly what effects the fiscal policy measures will have on individual countries and on the global economy. In addition to the positive effects from the recently decided measures, growth is being stimulated by what is known as the automatic stabilisers.