karolina ekholm : the interest rate, the exchange rate and inflation speech by ms karolina ekholm, deputy governor of the sveriges riksbank, at a meeting at danske markets, stockholm, 4 april 2011. * * * the views expressed here are my own and are not necessarily shared by the other members of the executive board of the riksbank or the riksbank ’ s staff. i would like to thank johanna jeansson and par osterholm for their great assistance in the writing of this speech. today, i will give an account of my stance at the latest monetary policy meeting in february. however, i will keep this relatively brief – the main part of my talk will focus on the significance of the exchange rate in the monetary policy process. there is no target level for the exchange rate, but, as it affects both inflation and resource utilisation, it is of fundamental interest to the riksbank ’ s analysis work. the fact that it is difficult to forecast does not mean that it can be ignored. the current situation and the monetary policy decision in february, the majority of the riksbank ’ s executive board decided to raise the repo rate to 1. 5 per cent and to revise the interest rate path upwards slightly. the justification for this decision was that the swedish economy remains strong. for example, gdp growth in 2010 was historically strong ( see figure 1 ). the development of the labour market is also continuing to be strong, and unemployment has fallen somewhat more steeply than was anticipated at the monetary policy meeting in december. furthermore, inflation has increased at a slightly faster rate due to higher energy and commodity prices. on the whole, growth abroad is also deemed to be strong. while it is true that developments in europe are still uncertain due to the fiscal problems in several european countries, prospects in the united states are judged to have brightened somewhat. bis central bankers ’ speeches as you are no doubt aware, on a number of occasions over the last year, i have entered reservations against monetary policy decisions, including the most recent one in february. one important argument for me has been that increased interest rate differentials in relation to other countries may have effects on the exchange rate. during the autumn in particular, my reservations have essentially been due to my scepticism of the assumption that foreign central banks will raise their policy rates at the rate specified by the riksbank ’ s main scenario. in my opinion, this has

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