in sweden during the 1970s and 1980s. this is because the nominal wage increases pushed up prices, which resulted in recurring cost crises. this type of development affects companies ’ competitiveness, production, investment and households ’ purchasing power. high inflation also leads to arbitrary distribution of income and wealth. for instance, those who saved their money in bank accounts during the 1970s and 1980s, when inflation was high, saw their wealth decline in value, while those who instead borrowed money and bought, for example, property, made a profit as property prices then increased at roughly the same rate as inflation. the conclusion is that low, stable inflation is an important condition for an efficient economy. experiences of different monetary policy regimes countries have long endeavoured in different ways to control inflation, often by trying to fix the nominal exchange rate by one means or another. however, during the post - war period it is only in recent years that we have really understood the long - term costs of high inflation. and it was not until then that there was a serious political ambition to deal with the inflation problem. during the 1960s and 1970s many considered that the cost of bringing down inflation was too high in relation to the advantages it would entail. there was also a belief that by accepting slightly higher inflation it would be possible to achieve a sustainable higher level of employment and lower unemployment. however, in time it became increasingly clear – thanks to both practical experiences and results from academic research – that this reasoning was not viable. at the same time, it is important to remember that during the first decades after the war we were living in a completely different type of economy compared with now, not merely with regard to the view of inflation. most western world countries had strongly - regulated financial systems. this was partly a consequence of the war, and partly due to the view that access to credit should be steered towards certain tasks. at the same time, many countries had fixed exchange rates and regulated capital movements, initially within the bretton woods agreement – the system that was generally based on fixed exchange rates. the task of safeguarding price stability had to make way for other central bank tasks. it was partly therefore that almost the entire western world lived with a rising inflation rate during the late 1960s and the 1970s. at the same time, the upswing in inflation did not go hand in hand with higher growth and employment. when the world economy and world trade grew, the regulations became increasingly ineffective. interest rate regulation, credit restrictions and exchange rate regulation hindered capital

markets are as yet limited to a few business cycles contributed to the difficulty in establishing simple policy rules in this field. conclusion and the current situation let me now briefly comment on our most recent interest rate decision. it may appear strange that the riksbank chooses to raise the repo rate in a situation where inflation is very low. to understand this, it is important to remember that monetary policy must be conducted on the basis of expectations of the future, i. e. forecasts. it is therefore not the present inflation rate we intend to influence, but the expected inflation rate a couple of years ahead. back in december we envisaged an inflation rate in line with the target towards the end of the forecast period, given a gradual rise in the repo rate during 2006. information we have received since december indicates that developments will be slightly stronger in sweden and abroad than we had assumed. as is often the case when making decisions, there are also arguments against raising the interest rate ; productivity growth and import prices are continuing to dampen inflation, and inflation is expected to remain low for a large part of the forecast period. one thing that must be remembered when considering our decision to raise the repo rate, is that monetary policy is still expansionary even after this decision, both from a historical perspective and compared with other countries. an interest rate increase of 0. 25 percentage points does not mean that monetary policy has been tightened ; it is merely the first step towards less expansionary monetary policy. something which in my opinion is quite natural, given the current economic situation, to ensure continued good growth. developments in household indebtedness and house prices are also factors that are important ; however they are not in any way decisive for this interest rate decision. from a monetary policy perspective, one can say that we are on somewhat unfamiliar ground with regard to this type of aspect. we cannot say with certainty what will happen to house prices when the interest rate is increased. we probably have a gentle adjustment ahead of us, with a rate of price increase that cautiously slows down. if house prices and indebtedness were to continue to rise very rapidly, there could be a risk of a more dramatic adjustment further ahead, with effects on the real economy and effects on inflation. with this background, too, the timing of the interest rate rise appears reasonable. the bank raised the repo rate in january. given the good economic developments, the executive board ’ s assessment was then that a continued gradual increase