##ilisation in important forward - looking indicators, particularly orders in the purchasing managers ’ index. however, the picture is not clear - cut and never is when economic activity is in the balance. but, as i mentioned at the meeting, if the signs of stabilisation become clearer they may affect the mood more permanently, not least on the stock market. this can in its turn have a positive effect on households ’ undermined wealth and help increase consumption. further ahead it may be possible to reinforce a positive cycle and for investment to pick up. i also mentioned that a large part of the economic policy stimulation, particularly investments in the us infrastructure, would have its greatest effect in 2010. having said this, i would like to point out, as i did in the discussion at our most recent monetary policy meeting, that it might very well be the case that the signs of stabilisation i mentioned then were delusive. and it is definitely not the case that i fail to see the seriousness of the economic downturn we are in. nevertheless, the recovery could as i have said be quicker or slower than expected. inflation outlook may change quickly falling resource utilisation and inflationary pressures have meant that we could conduct a strong, expansionary monetary policy to alleviate the effects of the economic downturn and at the same time ensure that inflation does not undershoot the target very far. we will see a negative inflation rate this year if we measure inflation by the consumer price index, the cpi. but this is largely due to our own interest rate cuts. the low inflation rate is temporary and should not trigger expectations of future deflation. inflation expectations according to, for instance, prospera ’ s survey, are anchored in a slightly longer perspective around the target of 2 per cent. my view at the april meeting was that we should begin to see signs next summer or autumn that the extremely low interest rate needs to be raised. i said then that it was not merely a question of an upturn possibly being on the way ; i also pointed out that monetary policy is forward - looking and its effects come after a time lag. it is therefore more guided by developments in 2012 and 2013 the closer we come to this period. i also emphasised that although inflationary pressures were not a problem at that point, or in the near future, the situation could look very different in a year or two. for example, commodity prices could have begun to rise more than we had predicted, or the

problems and downgraded credit ratings. in the unlikely event that this very negative scenario were to occur, several banks might therefore be forced to act to strengthen their capital bases. if this could not be achieved solely through private capital injections, there is a possibility for the government to inject capital by virtue of the government support to credit institutions act of last autumn. the riksbank ’ s assessment is that we, together with other swedish authorities, are also well prepared to be able to manage the problems that could arise if the situation were to deteriorate to the level of the stress test described in the financial stability report. let me just clarify that the financial stability report ’ s test of the financial system ’ s resilience cannot be compared with the alternative scenarios of a “ more probable ” nature that are usually presented in the monetary policy reports. the latter normally describe the consequences for monetary policy of developments being better or worse than the situation described in the main scenario, but where the alternatives are not normally too far from the main forecasts. in the financial stability the scenario is rather more exaggerated. so where do we stand now and where are we heading? let me briefly summarise where we stand now in terms of risk focus ; the liquidity problems have been dampened, while credit risks and feared loan losses are increasingly in the limelight as economic prospects have deteriorated. credit risks and the size of loan losses are of course closely interlinked with economic activity. so i shall now, not least for this reason, move on to talk about economic activity – the assessments made by the riksbank at the most recent monetary policy meeting in april and the nuances in the views of future economic developments that i put forward at the meeting. things could be better or worse it is natural in times like these to paint a gloomy picture and focus on downside risks. and i am probably the last person to deny that such risks exist. it is also natural that the focus of the monetary policy discussion should be on what a central bank can do when the policy rate approaches zero and further stimulation may be necessary as this is to some extent “ uncharted territory ” for us. but let me now change perspective and adopt a slightly more positive tone. in the discussions at the two most recent monetary policy meetings i have pointed out that there is some possibility that the recovery both in sweden and abroad could come more quickly than most people are assuming. one could perhaps say that i have acted as