to find a policy that is sufficiently tight to prevent inflationary impulses gaining a lasting grip. this is necessary to ensure that they do not spread to inflation expectations, wages and other prices. at the same time, the policy must be sufficiently loose to avoid unnecessary negative effects on production and employment. it is a difficult balancing act. to manage this in a way that provides a good growth in the economy that is sustainable in the long term requires that the credibility of the inflation target remains intact. this is the premise for formulating monetary policy. if the expectations of inflation are pushed up and remain above the inflation target, there is a risk that they will become a self - fulfilling prophecy. and dealing with high and fluctuating inflation rates is often a very difficult and expensive process – for individual households and the economy as a whole. the oil price shocks in the 1970s are examples of how external inflationary impulses were allowed to gain a firm foothold and spread throughout the economy at the same time as economic activity was weak. the cost of dealing with this adjustment was high, not least because our competitiveness was undermined. the consequences for swedish monetary policy right now what do the rising commodity prices mean for the interest rate decision we made a couple of weeks ago? what will it entail for future monetary policy if these price rises continue? well, it is of course largely the balancing act i recently described. we executive board members must currently take into account in our deliberations the forces pulling the economy in different directions. in sweden economic activity is still fairly strong, but there are signs of a slowdown. we are also seeing weaker international developments and financial turmoil. in contrast, inflation and inflation expectations remain high. one can thus say that commodity prices are in a way in both scales of the balance. they are to some extent both behind the slowdown in economic activity and behind the high inflation and inflation expectations. the way my executive board colleagues and i weighed together the various factors at the most recent monetary policy meeting resulted in our holding the repo rate unchanged at 4. 25 per cent. we are also currently assuming that the interest rate will need to be held at this level in 2008 to manage the inflation target a couple of years ahead. of course, commodity prices were important in our assessments. so let me therefore conclude by describing how i myself reasoned in connection with the interest rate decision. rising prices all in all, inflation has largely developed in line with the forecast in the february monetary policy

, was affected by the economic slowdown in 2001. the slowdown was aggravated by the uncertainty following the terrorist attacks on 11 september. growth in sweden and in the oecd as a whole was then around 1 per cent. economic policy was made more expansionary in many countries and at the beginning of 2002 there were signs that uncertainty had declined and that economic activity was about to improve. growth improved slightly and assessments of future growth assumed that economic activity would continue to strengthen. however, these expectations were not met. during the second half of 2002 economic prospects took a downturn once again, growth forecasts began to be adjusted downwards and the time for the economic upturn was postponed further. this applied both internationally and in sweden. it was partly due to the confidence crisis suffered by the business sector as a result of corporate scandals in the united states and a number of large - scale bankruptcies. this contributed to a new stock market fall. the threat of war in iraq and the ensuing outbreak of war for a time created greater uncertainty over the global economy than usual. the lack of clearly positive economic signals once the acute stage of the war was over, contributed to an increasingly pessimistic view of the economic situation during the first half of 2003. the weaker economic activity was also reflected in the riksbank ’ s inflation and growth forecasts, and the repo rate was cut by a total of one percentage point during spring and summer 2003. during the second half of 2003 the views of economic activity became slightly more optimistic again. it now appears that economic growth in sweden and the united states during 2003 was largely as we had expected at the beginning of the year. in sweden, investment showed a much poorer growth than expected during 2003, but this was counteracted by good growth in consumption, in both the private and public sector, and by favourable developments in foreign trade. one could therefore say that the riksbank, in common with other analysts, became overly pessimistic in connection with the iraq war, at least with regard to the view of economic growth in the united states and sweden. with regard to developments in the euro area, the situation is slightly different. there, the growth forecast for 2003 has been revised down further during the second half of the year and it is only very recently that some positive economic signals could be distinguished. however, it is quite clear that growth in the euro countries was much poorer during 2003 than we believed it would be at the beginning of the year