consequences for monetary policy. we can expect more central banks abroad to conduct an expansionary monetary policy in order to counteract the dampening effect of fiscal tightening on demand. however, as policy rates in many countries are already close to zero there is limited scope for further policy - rate cuts. many central banks are instead expected to leave their policy rates unchanged for some time to come. low policy rates can also be combined with unconventional measures designed to push down long - term interest rates. 9 if the market expects the policy rate in sweden to be significantly higher than policy rates abroad, this can lead to an increase in the demand for assets in kronor as a higher swedish rate, all else being equal, increases the return on investments in swedish currency. this normally contributes to a strengthening of the krona exchange rate in the short term. a stronger krona slows down any increase in import prices. for the riksbank, which conducts an inflation targeting policy, this could be positive if inflation was high in the initial position. however, as underlying inflation is currently low, i have argued that a strengthening of the krona would, if anything, have a negative effect. moreover, a stronger krona has a negative effect on net exports as it means that goods and services produced in sweden become relatively more expensive. this in turn has a negative effect on gdp growth and resource utilisation. as i see it there are two reasons why recent developments abroad contributed to the decision to leave the repo rate unchanged and to revise the repo rate path downwards at the latest monetary policy meeting. the first is that weaker growth abroad has a negative impact on growth in sweden too and this needs to be countered by providing a stronger monetary policy stimulus. the second is that expectations that monetary policy will remain expansionary in large economies like the unites states and the euro area, for a longer period than was previously assumed, also have an effect on swedish monetary policy. swedish interest rates cannot deviate too much from foreign interest rates without this having an effect on the exchange rate. the exchange rate is of great importance to both inflation and resource utilisation and thus influences what constitutes a well - balanced monetary policy. what then will be the overall effect for sweden? we were able to note in september that the demand for swedish exports was growing more slowly than previously expected due to the weaker development of the export markets of importance to sweden. this weaker development is partly due to the fact that market turbulence resulting from the

slowdown in economic activity abroad during the summer the financial markets have been characterised by considerable turbulence as a result of the sovereign debt problems in the euro area and the united states. in the euro area, it is above all the state of central government finances in greece that has been in focus in the media, but other euro countries such as portugal, ireland italy and spain have also suffered debt problems. the situation in the euro area has made the situation in parts of the european banking sector increasingly strained. for example, a number of banks, above all those that are highly exposed to the countries with weak public finances, have suffered a shortage of liquidity and are finding it difficult to borrow money. there is concern that a collapse of these banks would lead to contagion effects in the international banking system. uncertainty about the situation bis central bankers ’ speeches in parts of the banking system has led credit rating agencies to reduce the credit rating of a number of banks. gdp growth in the united states was weak already during the first six months of 2011. the increases in corporate investment and in employment have been low – far too low to reduce unemployment by more than a percentage point or so. household consumption has also been weak. this is because a high level of debt in combination with falling asset prices has reduced the net wealth of the households and they are now trying to counter this by reducing their debts. the continued weak development of the us housing market is also a factor that is holding back an improvement in the net wealth of the households. as in parts of europe, the united states is experiencing a major budget deficit and a growing national debt. in may this year, the us national debt reached the so - called debt ceiling, which limits how much the united states is allowed to borrow. this meant there was a risk that government grants and everything from salaries for government employees to interest payments on the national debt could not be paid. as the united states is the largest borrower in the world this led to a lot of unease on the financial markets. reaching agreement on how to deal with this was made more difficult due to the political divisions between the republicans and the democrats. an agreement to raise the debt ceiling and reduce the federal deficit was actually reached at the end of june, but the strongly politicised process prior to the agreement and the fact that it was reached so late has created doubt about the united states ’ ability to handle its national debt. the increasing concern about economic problems around the world is dampening the prospects