easing the heavily restrictive effect of the high level previously. this contributed to an increase in domestic demand as well and broadened the economic upswing. that can be said to have instigated the considerable reduction of unemployment we have seen in recent years. neither the asian crisis in 1997 nor the turbulence in international financial markets in the autumn of 1998 had much of an impact, thanks not least to a monetary policy realignment in many countries. the swedish repo rate was also cut, to a low of 2. 90 %. so despite these crises elsewhere, growth in sweden remained stable at an average annual rate of 3 to 4 %. when the unrest had subsided, the repo rate was raised to the current level of 3. 75 %. the riksbank has heralded a repo rate increase for some time during the past year, riksbank representatives have frequently said that sooner or later, a continuation of strong economic activity will make a further repo rate increase necessary. this is because an annual gdp growth rate of 3 to 4 % is more than the economy can achieve without generating imbalances. higher economic growth is, however, feasible for a time if there are unutilised resources in the economy. but when tensions arise between total demand and supply, various bottleneck problems are liable to result in price and wage increases that ultimately threaten price stability. perhaps the best illustration of this is to be found in the labour market. the increase in employment in recent years has exceeded what demographic factors are contributing to labour force growth by around 40, 000 to 70, 000 persons a year. employment growth is in fact the strongest for several decades. considering how high unemployment has been, this is welcome. but sooner or later, such a development means that firms will have difficulties in recruiting labour. then, if not before, wage costs are liable to accelerate and push prices up. the issue of when this will happen does not have to do with either the actual level of unemployment or the number who were employed when activity last peaked in the late 1980s. it depends instead on how serious any bottleneck problems are becoming and how strong those with jobs consider their bargaining position to be in wage negotiations. briefly, then, important factors in the assessment of the risks of inflationary tendencies are how well the labour market is functioning and how quickly resource utilisation is rising. monetary policy contributes to stability in an upward cyclical phase, the move towards a situation where the tensions in markets for goods, services

it seems that banks made similar mistakes time and again. this applies to the generosity of domestic banks in financing asset investments of private players, as well as to the propensity of international banks to place foreign currency at the disposal of domestic counterparties. lending to financial institutions tends to be highly concentrated and this exacerbates the situation in times of financial turbulence. it may also be asked whether credit assessments were as thorough as they should have been. what are the reasons for this? one is probably the difficulties for both banks and supervisors in judging the risks in credit commitments. credit risks are not simple to handle, neither is it easy to obtain a clear picture of different players ’ loan portfolios. so genuine difficulties in making assessments are one explanation. another is that in certain cases, instead of attempting to assess risks independently, banks appear to have simply followed the herd. a recurrent theme in the decade ’ s crises accordingly seems to be the underestimation of credit risks. it is therefore up to the banks to establish a better credit policy in their institutions. this credit policy must pervade the whole establishment, from individual credit managers up to the more comprehensive strategies of executives and boardrooms. but that is not sufficient, or rather it probably will not happen unless measures are also taken by the regulatory and supervisory authorities. this is because in their lending and general behaviour, banks are influenced by their expectations of how authorities will act in the event of a crisis. role of the authorities oversight in sweden is the responsibility of the riksbank. we are required by law to “ promote a safe and efficient payment system ”. the payment system is such a large component of the financial system that our role can really be described as being to promote the latter ’ s general safety and efficiency. supervision, however, is the function of the financial supervisory authority. what this means is that the riksbank primarily oversees developments in a system or a market, while the financial supervisory authority, besides monitoring the stability of the entire system, focuses on the situation in each institution. in practice, however, these two roles are difficult to distinguish clearly, so close cooperation between the two authorities is important. it is indeed a hallmark of our relationship, from the executive level down to managers and their personnel. still, the riksbank is in a position to detect more direct problems at an early stage, since they are likely to show up in the payment system, for which we are responsible. our possibilities of affecting the