a given forecast the difference between market expectations and the riksbank ’ s forecast for the repo rate 1 to 12 quarters ahead are measured. this thus gives 12 different deviations for each time of publication. one measure gives the average of all 12 deviations. the other measure shows a “ standard deviation ”, where the sign of the deviation is unimportant. … and what are they due to? to begin with, i would like to make the reservation that market expectations cannot be observed, they can only be estimated. some of the deviations may thus be due to the fact that we have not succeeded in adjusting the forward rates for various types of premium. in addition to this, there are a number of other possible explanations for the deviations. in one sense it may be natural that market expectations deviate from the riksbank ’ s repo rate forecast. market agents may have a different picture of future inflation and economic developments as a whole, which would motivate a different repo rate in the future. even if market agents share the riksbank ’ s view of economic developments, there may well be a deviation with regard to future interest rates. this can be due to different views regarding the transmission mechanism, that is, the effects of the repo rate on the economy. are the deviations a problem? as i mentioned earlier, one reason for publishing repo rate paths is the opportunity to effectively steer market expectations. we have seen that market expectations sometimes deviate from the riksbank ’ s published path. one reason for this is that the uncertainty over future economic developments has been unusually great during the financial crisis. however, i would like to tone down the importance of the deviation between market expectations and the riksbank ’ s repo rate path. there has not been any systematic deviation in either direction, if one looks as the average of the repo rate paths and market expectations over three years. inflation expectations are a decisive factor for credibility my view is that the decisive factor for a central bank with an inflation target is inflation expectations. expectations should be anchored around the inflation target in the long run. i say “ long run ”, as inflation expectations in the short term vary considerably in accordance with actual inflation. figure 4 shows inflation expectations 1, 2 and 5 years ahead according to prospera ’ s survey for money market participants. we can see that inflation expectations 5 years ahead have been around 2 per cent during the past 10 years. i interpret

##ksbank is characterised more by long - term discussions on monetary policy than on individual decisions. i shall now go on to briefly describe how the repo rate forecast is produced. how is the repo rate path determined? the publication of our repo rate forecasts makes greater demands than previously on the internal preparation work. the new method of working requires a greater interaction between the staff and the executive board, and the board members are involved at an earlier stage of the process. this is made easier by members of the executive board being full - time employees and not merely being called together for monetary policy meetings. so what does the practical work leading to the published repo rate path actually entail? the monetary policy decision - making process normally follows an established preparatory process. 4 during a number of weeks employees in the monetary policy department prepare draft forecasts for economic developments, including the repo rate. after this there are meetings together with the executive board of the riksbank, and a main scenario for economic developments, including the repo rate, is drawn up. of course, the main scenario is based on a combination of model - based forecasts and assessments. see lars e. o. svensson, “ policy expectations and policy evaluations : the role of transparency and communication ”, economic review 2010 : 1, sveriges riksbank. for a more detailed description of the preparatory work prior to the monetary policy decisions, see kerstin hallsten and sara tagtstrom ( 2009 ) : “ the decision - making process – how the executive board of the riksbank decides on the repo rate, ” economic review 2009 : 1, sveriges riksbank. during the forecasting process, the main scenario presented at the monetary policy meeting has in practice become a scenario that is supported by a majority of the executive board members. if there are any reservations against the main scenario or the monetary policy decision, these are made clear at the monetary policy meeting. thus, the monetary policy decision is preceded by a long process. as the decision now also includes the board ’ s view of the future repo rate, more in - depth and long - term discussions are required than if it was merely a question of whether or not to alter the repo rate. the repo rate path has entailed a fruitful change. the role of the repo rate path during the financial crisis when we began to make repo rate forecasts a few years ago, i do