. a desire to lower the chances of such a situation may, in itself, argue for a more expansionary monetary policy. a more expansionary monetary policy at the start of 2015, we thus found ourselves in an unusual situation with a series of circumstances that suggested that monetary policy needed to be more expansionary : declining confidence in the inflation target, the measures adopted by the ecb to weaken the euro, the risk that the falling oil price would put further pressure on inflation expectations and increased uncertainty over international developments. consequently, there was a need to strengthen confidence in the inflation target through clear signals of the riksbank ’ s ability and willingness to bring inflation back to the two per cent target in a controlled form. we needed to clarify and practically demonstrate that monetary policy had more to give. the repo rate was already at a historically - low zero per cent and even the interest rates we sometimes call the final interest rates – that is, those actually paid by households and companies – were at historically low levels. but interest rates needed to be even lower and we needed to counteract the increasingly rapid appreciation of the krona. negative interest rate? the most obvious measure was to cut the repo rate further, that is to make it negative – to introduce what, in everyday parlance, was starting to be called a negative interest rate. when we cut the repo rate to zero per cent, we did not observe any major problems. but would making the repo rate negative and quite simply forcing the banks – and, ultimately, perhaps their customers – to pay to keep money in an account really have the same impact on final interest rates for households and companies and, if so, could it be implemented without causing problems elsewhere in the system? one objection towards negative interest rates is that people will choose the alternative of keeping cash in their mattresses. as this would be troublesome and not entirely risk - free, it can be imagined that most people would want to hold off stuffing their mattresses with cash as long as interest rates stay only slightly negative, but it is, of course, difficult to gain clarity as to exactly where such a boundary would lie. if the banks were unwilling to introduce negative deposit rates, would they then attempt to maintain their earnings by not cutting their lending rates either, in the eventuality that the repo rate was cut to below zero per cent? there are some international experiences, albeit short - lived, of bis central bankers ’ speeches negative interest rates that can be looked

- term inflation expectations, in the way we can measure them, have remained fairly stable at around 2 per cent. this does not, of course, mean that the riksbank can always sit with its arms folded when inflation rises and expect inflation to return to the target ‘ by itself ’. it is reasonable to assume that the fact that long - term inflation expectations are firmly anchored to the target is because economic agents expect the riksbank to act when needed. but the fact that there is a credible nominal anchor today does of course make things easier, even though it ultimately hinges upon the way monetary policy is conducted. 11 secondly, swedish wage - formation works in a completely different way than in the 1970s and 1980s. one important reform was the so - called industrial agreement, under which the manufacturing industry has set the benchmark for wage negotiations and ultimately steered wage cost increases in the entire economy for over twenty years. the relationship between this benchmark and the inflation target has not always been crystal clear. for instance, employers ’ representatives have sometimes expressed the view that the inflation target is obsolete and should not be used as a base in wage negotiations. however, this was during the extended period when inflation tended to be at the lower end of the target. however, as developments now show, we must assume that inflation will sometimes be above the target as well. hopefully, this will further underline the importance of the inflation target as a nominal anchor for the swedish economy, both upwards and downwards, so to speak. should it now be the case that we are entering a longer period of persistently higher inflationary pressures – which we do not know yet, of course – then my assessment is that the framework of wage - formation we have today will act as a built - in and useful brake in the system. thirdly, a stricter and more robust fiscal policy framework was introduced after the crisis in the early 1990s. this has contributed to public finances now being in a much better shape than they were in the 1980s and 1990s. a large and growing sovereign debt may raise inflation expectations, if agents suspect that the government may eventually try to solve the problem of by inflating the debt away. this means is that the central government reduces the real value of the debt by letting inflation rise. however, unlike in the 1970s and 1980s, we have now a number of control mechanisms in place, which means that this potential source of excessive inflation has in practice been eliminated. my reflections on the current situation so,