01 : 3 sources : hanson & partners and the riksbank last december, when it still looked as though resources would continue to become increasingly strained, we were concerned about the exchange rate and its effects on prices. we counted on gdp growth rates last year and this of 4 and 3. 5 per cent, respectively. since then our appraisal of resource utilisation has changed a good deal. we now know that last year ’ s growth stopped at 3. 6 per cent and for this year we are counting on 1. 3 per cent. this means that as a percentage of gdp, resource utilisation at the end of 2001 will be between 2 and 3 points lower, which is a marked downward revision. another aspect is that the slowdown is connected with a weak tendency in the rest of the world. consequently our assessment of international export prices has also been revised downwards and this, too, counters the inflationary impact of the weaker exchange rate. so although we continue to point to the weak krona as an inflation risk, this risk now seems to be smaller, mainly in view of the downward revisions of capacity utilisation. in june we had some additional factors to consider. the krona suddenly weakened dramatically in the absence of a general increase in financial unrest. this suggested that the causes were specific for sweden. as inflation had moved up appreciably more than expected in the previous months, this was particularly troublesome. although a large part of the increased inflation was presumably transitory, the riksbank perceived a risk of higher inflation expectations. rather than take that risk, we decided to raise the interest rate and intervene in the currency market. the forecast in conclusion i want to make some brief remarks about the future, using our latest inflation report as the chief starting point. the main scenario there is based on the prospect of what might be called a normal cyclical development, driven above all by an international recovery, good disposable incomes and a relatively weak exchange rate ( diagram 5 ). 5. gdp sweden, percentage annual change before and after bottoming out of economy 1977 q4 1981 q1 1993 q3 1997 q1 2002 q2 forecast - 1 - 1 - 2 - 2 - 3 - 3 - 4 - 4 - 6 - 5 - 4 - 3 - 2 - 1 source : the riksbank unchanged appraisal of the krona ’ s fundamental value our assessment of the future exchange rate is somewhat less optimistic than before. this has

% stadshypotek + handelsbanken hypotek ( 33 % ) 1 % 33 % spintab + foreningsbanken kredit ( 28 % ) sbab ( 13 % ) 13 % nordbanken hypotek ( 13 % ) skandia banken bolan ( 1 % ) 13 % seb - bolan ( 10 % ) venantius ( 2 % ) 28 % swedish mortgage institutions´ shares of borrowing on the security market ( money market instruments and bonds ), 2000. 7 % 3 % 13 % 35 % spintab stadshypotek sbab nb hypotek seb bolan 18 % ovriga 24 % traditional mortgage financing swedish mortgage institutions finance their operations mainly by issuing bonds and certificates. the entire balance sheet of the mortgage institution serves as security for borrowing, and consequently each loan is not directly linked to a specific amount of collateral. the advantage of the swedish model is that borrowing can be undertaken without any fixed link to specific loans. this means that large loans can be put onto the market, which makes it easier to uphold regular trade and strong liquidity. this has been the case with the swedish benchmark bonds. thanks to significant lending volumes and strong price formation on domestic loans, the mortgage institutions have also been able to compete successfully on the international bond market. borrowing against the entire balance sheet as security requires significant risk capital or some form of guarantees from the owners. all mortgage institutions, with the exception of seb bolan which does not does undertake borrowing transactions in foreign currency, have a capital cover considerably above the statutory minimum of 8 % ( figure 9 ). swedish mortgage institutions´capital ratios, 1999. nb - hypotek sbab seb bolan spintab stadshypotek total 9, 4 8, 8 13, 5 12, 6 tier 1 8, 8 6, 5 4, 8 10, 0 12, 6 source : mortgage institutions´ annual reports. the swedish mortgage institutions are currently estimated to borrow around 20 % of their capital from abroad. the major part of this is borrowed from investors in the usa and japan. borrowing in the euro area accounts for approximately 20 % of borrowing abroad. it is difficult to see that the option of borrowing in euro would increase central european investors ’ interest in swedish housing bonds. as long as sweden is not a member of emu and as long as swedish borrowers want to borrow in swedish