they have also been affected to different degrees by the decline in world trade. the countries that have quickly taken concrete measures will probably come out of the recession first. this indicates that the recovery will not be synchronised. in sweden we are now assuming that gdp will fall almost as much as during the crisis in the 1990s. at that time the crisis was domestically - generated with financial imbalances, high nominal interest rates and an overvalued currency. on this occasion much of the disruption comes from outside. public finances are in a good condition to begin with, interest rates are low and we will probably continue to have a current account surplus. at the same time, exports are declining rapidly, which has negative repercussions on investment. household consumption is subdued by the deterioration in the labour market and an increase in precautionary saving. the outcomes and confidence indicators in recent months emphasise the weak developments. the recession is assessed to be unusually deep, which affects the supply of credit. although corporate borrowing is still increasing, loan terms for companies have been tightened. there are also signs that there has been some substitution from market borrowing to bank borrowing. it is the larger companies that are experiencing the biggest problems with funding in the market and taking up a rising share of bank loans, which contributes to smaller companies seeing themselves at a disadvantage. there are now clear risks that increased credit losses will subdue the banks ’ lending to companies. there is also a risk that small and medium - sized companies will be pushed aside. funding difficulties and weak international demand have led to companies revising down their investment plans. all in all, this points to the swedish economy being weaker than was expected in february. it means that resource utilisation will be lower than normal during 2009 - 2011. this entails a risk that inflation could be lower than the monetary policy target. in addition, inflation expectations have fallen and are slightly below 2 per cent two years ahead. the repo rate and the repo rate path need to be lower to counteract the weak resource utilisation and inflationary pressures. this is why the repo rate was cut to 0. 5 per cent and the riksbank considers there is some probability of a further cut in the future. the future repo rate path has also been lowered and the interest rate forecast now points to a very low repo rate during a relatively long period of time. the repo rate is expected to remain at a low level until the

beginning of 2011. the economic policy measures that have already been taken and are expected to be taken in the future will contribute to a recovery abroad and in sweden as the global financial system begins to function better. at the same time, a weak krona stimulates the economy. gdp growth is expected to be positive but relatively low in 2010. however, the labour market will lag behind and employment will not begin to rise until 2011. inflation measured in terms of the consumer price index will fall very rapidly in 2009. this is primarily because the riksbank ’ s substantial interest rate cuts at the end of 2008 and the beginning of 2009 reduced households ’ housing costs. if the effects of unchanged mortgage rates are excluded, inflation will develop in a more stable manner and be close to the target of 2 per cent for most of the forecast period. it is weak productivity developments and the weak krona that will contribute to holding up inflation despite the economic recession. if the swedish economy risks deteriorating more than expected, it may be necessary to implement further unconventional measures the future direction for monetary policy will depend, as usual, on how new information on economic developments abroad and in sweden will affect the prospects for economic activity and inflation in sweden. if the economic situation deteriorates further it is possible to use monetary policy easing to further stimulate the economy. but there are also reasons for further consideration of what is an appropriate level for the repo rate. if the repo rate were to become too low the transmission mechanism might become less effective. this is because some market rates are lower than the repo rate. when the repo rate approaches zero, these interest rates would no longer be able to follow. a too low repo rate could also create costs in the financial sector as the result of, for instance, a reduction in the banks ’ margins. there is thus a risk that the functioning of the financial markets will deteriorate if the repo rate is cut further. in this case monetary policy will not have the intended effect. however, the riksbank can stimulate the economy further in other ways without needing to cut the repo rate to zero. the most important measure concerns ensuring that the real interest rate, that is, the repo rate adjusted for inflation expectations, is sufficiently low. this can be done by influencing inflation expectations, which is made easier as we have a numerical inflation target and we publish forecasts for both the inflation rate and the repo rate. we can, for instance, announce