that inflation and resource utilisation are stabilised as far as possible, regardless of whether this requires a high or a low repo rate and regardless of whether there is a crisis or not. a repo rate path way above market expectations the repo rate path is much higher than market expectations according to implied forward rates. the repo rate path corresponds to much higher market rates than the current ones. if the repo rate path were to become credible, it would lead to a significant increase in long interest rates and a large appreciation in the swedish krona, which would risk strangling the recovery in exports and gdp, raising unemployment and lowering inflation. the reasoning can be explained with the aid of some figures. in figure 7 the red curve shows the repo rate path in the main scenario, and the blue curve shows implied forward rates according to swedish market rates. the curves gave been extrapolated beyond the usual three - year horizon, to a five - year horizon. 6 figure 8 shows the yield curves corresponding to the curves in figure 7. the yield curves show short and long interest rates, more precisely a zero coupon rate as a function of maturity according to the horizontal axis. the difference between the red and blue yield curves shows what would happen to interest rates for various maturities if the repo rate path were to become credible. this would cause the blue yield curve to shift upwards to the red one. a three - year interest rate would thus increase by approximately 60 basis points, and a five - year interest rate would increase by closer to 90 basis points. normally, the riksbank ’ s wish and endeavour is that the repo rate path is credible, and incorporated into market expectations and market pricing. in this way, monetary policy has the largest possible impact. this time, it seems to be less desirable. if the repo rate path were to become credible, long interest rates would rise drastically, which would mean a substantial tightening of monetary policy in relation to the present situation. in my opinion, the repo rate path in the main scenario should be one that we want to immediately become i have extended the repo rate path beyond the three - year horizon so that the repo rate rises steadily up to a long - term level of 4 per cent. credible, if it is not already credible. that is, the repo rate path of the main scenario should be chosen such that is best stabilises inflation and resource utilisation when it is credible

in a very broad sense. at present, we are conducting the policy that we believe is necessary to meet the inflation target and support the recovery of the swedish economy. when it comes to preventing systemic risks such as a prolonged unbalanced development of the housing market, the repo rate is too blunt an instrument to do the job on its own. the repo rate should only be considered if the systemic risk is such that it affects our possibility to meet the inflation target and support the stabilisation of the real economy and the financial markets. there are instead other and probably more important factors than the repo rate when it comes to avoiding an unbalanced development of the housing market. this perhaps relates above all to effective regulation and supervision. it is also important that the banks and the households make realistic assessments of housing costs in the period ahead and that they ensure that in all new borrowing there is a margin for higher interest rates than those we have today. however, even though regulation and supervision are sharper tools in the work to promote stability than the repo rate, it is of course not the case that monetary policy has no impact in this context. an important challenge in the period ahead, as i see it, will be to try to find an appropriate mix between regulation and supervision on the one hand and monetary policy on the other. so, how should the authorities act if, for example, they suspect that a property bubble is developing and that this may lead to a serious increase in systemic risk? dialogues with and warnings to the banks will continue to be important tools. however, our experience shows that warnings are not always heeded to the extent they should be. the authorities therefore need to be able to use more concrete and more costly measures, partly to achieve more effective communication and partly – if warnings do not help – to affect the behaviour of the participants more directly. a recurring issue in international discussions is what types of measure are most effective in influencing risk behaviour. can we influence behaviour best by controlling prices, that is by applying regulations that make lending more expensive, or by using quantitative regulations? let me return to the mortgage example i used above. controlling prices would in this case entail an increase in the capital requirement for mortgages. in the eu, for example, it has been discussed whether the capital requirement should to a greater degree depend on the leverage ratio. quantitative regulations could include stipulating amortisation requirements or regulating the loan - to - value for mortgages. economists