to this, the american example does show that a judicious upward adjustment of the interest rate definitely can contribute to good economic effects provided the sustainability of growth is also taken into account. i do not cite the case of the united states to imply that the riksbank has already decided to make further rapid interest rate increases in the near future. that is not how we work. those who follow what we do know that the foundation for monetary policy measures is our inflation forecast. at the time of the latest repo rate increase the riksbank ’ s executive board judged that inflation is rising only moderately and will be approximately in line with the target in one to two years ’ time. it must be borne in mind, of course, that new information may alter our assessment and that our time horizon in the upward phase is moving ahead. in the short perspective, however, things look a little different. the rate of inflation may actually tend to slacken this spring, partly due to effects of the deregulation of telecommunications. but as i said, the perspective for monetary policy lies further ahead. forecasting is difficult the difficulty for the riksbank lies in constructing forecasts for the period - usually one to two years ahead - that is generally regarded as the time lag before an interest rate adjustment has its full effect. anyone with some experience of forecasting knows how difficult this can be and is aware that forecasts not infrequently miss the mark. we could in fact attach more importance to the current as opposed to the forecast future rate of inflation but that would probably call for rather large repo rate adjustments in order to keep inflation stable around the target. such an approach would result in sharp fluctuations in real economic activity, which would naturally not be desirable. are there any developments which suggest that the time lag for effects of interest rate adjustments may be becoming shorter? more and more home owners are switching from fixed to variable mortgage rates, which may indeed tend to speed up the impact of monetary measures. but there are other factors which may be working in the opposite direction, towards a longer time lag. one example is the costs involved in altering prices. one of the benefits of low and stable inflation is precisely that it facilitates contracts with a longer duration. insofar as the establishment of a low - inflation regime has led to price movements being more restrained for this reason, it follows that it will take longer for monetary policy measures to impinge on prices. for monetary policy ’

relatively little affected by the current lower level of economic activity. property companies ’ earning capacity should thus be relatively stable, which is positive from the point of view of both the company owners and creditors. however, the weak level of residential construction has led to sluggishness in the housing market. the fact that it is possible to move between residential areas and between regions stimulates mobility among the labour force and flexibility in the functioning of the labour market, which affects economic developments. a clear example of this is the stockholm region, which has a housing shortage. this has probably led to a lower growth for the stockholm region than would have otherwise been the case. as 25 per cent of sweden ’ s economy lies in stockholm, this affects the entire country ’ s growth potential. a housing sector that does not function properly will thus affect the country ’ s potential growth, as it will become more difficult for labour to move to where the jobs are. for this reason, it is in my opinion important that a review is made of the total complex of regulations governing the functioning of the housing market, in order to allow it to function better. from the riksbank ’ s point of view, a higher potential growth means that demand in sweden can be higher at the same time as price stability can be maintained. the credit granting process if the housing market can become more flexible, it will enable new construction where housing is most needed. these new investments will need to be financed. it is therefore important to be aware of the professionalisation of the credit granting process that has occurred within the financial institutions following the bank crisis. this is reinforced by the new capital adequacy rules that are being worked out. the modern credit granting process focuses more on the individual borrower ’ s cash flows. this individualisation means that the interest paid will to a greater extent reflect the market ’ s valuation of the profitability of the individual object, e. g. a particular property. does the banks ’ setting of interest rates vary between different borrowers and credit objects? how is credit granted today? how do the banks assess a loan application? i shall not explain these processes in detail, but outline the most important elements. credit granting is part of the banks ’ core business. it involves mediating savings to borrowers. as managers of our savings, the banks have always needed to be able to assess, measure and manage the risks inherent in these operations. the four major banks regularly monitored by the riksbank have similar