also be due to highly indebted households reacting more to a given change in income than other households. you would expect this to be the case if households with high debt do not have the same opportunity as others to maintain their consumption by borrowing more. 5 see sveriges riksbank ( 2011 ), the riksbank ’ s inquiry into risks on the swedish housing market, and hansen, s. ( 2013 ), explanations of the development of household indebtedness since the mid - 1990s, memorandum 1. finansinspektionen. 6 see the article “ how are households affected by rising interest rates? ” in the december 2017 monetary policy report, and gustafsson, p. et al ( 2017 ), how are household cashflows and consumption affected by higher interest rates? staff memo, sveriges riksbank. see, for instance, floden, m. et al ( 2017 ), “ household debt and monetary policy : revealing the cash - flow channel ”. sveriges riksbank working paper series 342. sveriges riksbank. 6 greater interest - rate sensitivity creates uncertainty about the impact of monetary policy how total consumption will be affected when interest rates are gradually raised towards more normal levels is difficult to know. interest expenditure will increase, and for some households by a relatively large extent. but the total effect will also depend on what happens in the economy otherwise as regards income from employment, housing prices, expectations, etc. it is difficult to include all such factors, but calculations show that we should expect a given interest - rate increase to subdue consumption for mortgage holders more now than in the mid - 1990s. 8 at least for certain groups, monetary policy therefore has a greater impact on the real economy now than previously. this could justify slower rate hikes than has been the case in similar economic situations in previous years. for other groups of households, on the other hand, the impact of rate hikes is not as great. there is hence an intrinsic tension here. the riksbank has only one policy rate and it is adapted to aggregate demand and the economic outlook in general, and above all to how inflation will develop. higher interest - rate sensitivity and the extent to which it affects the impact of monetary policy will, in other words, be a source of uncertainty. it will, after all, be a challenge to have a situation for a number of years in which interest rates rise – albeit slowly – while

that has been with us for some time now is the sectoral ( and associated regional ) imbalance within our overall economy. the domestically - oriented sectors have, for the most part, been doing relatively well, whereas those sectors that are exposed to competition within or from the euro area have been under considerable pressure. domestic demand growth has remained relatively robust into this year, but we too are affected by the us slowdown and by the associated weakening of equity prices. and we have had a new problem of our own in the form of foot and mouth disease, the effects of which have gone a good deal wider than just the agricultural sector. these new developments were likely to have a dampening effect on demand pressure within the overall economy, both through their direct impact and through possible damaging effects on confidence. given the fact that we started from a position in which inflation was below target ( and expected to remain so for some period ahead ) ; and given only modest upward pressure – at least so far – on wages and earnings growth, despite the continuing tightness in the labour market ; we judged that we needed to reduce interest rates – by ½ % – earlier this year in order to meet the inflation target further ahead. and we have made it clear that we will continue to monitor the downside risks very closely, in the context of course of all the other developments affecting our economy. mr chairman, i have discussed the current international conjuncture at some length to illustrate that even though we all have broadly common economic objectives, that does not make them easy to achieve. we all face our own domestic uncertainties and are exposed to the international repercussions of developments elsewhere. financial stability one of the greatest difficulties we face is the problem of how to cope with movements in financial asset prices, including exchange rates. that problem has become an increasing preoccupation with increasing financial wealth in our economies and with global financial integration. in the context of macro - economic stabilisation we can, and of course do, take account of asset prices as best we can in both our projections and our policy decisions. the strength and subsequent weakening of stock markets in all our economies, for example, will have been one of the factors influencing both investment and consumer demand to varying degrees for all of us ; and the behaviour of exchange rates is clearly a factor influencing inflationary pressures in our respective economies, both through its direct effect on prices and indirectly through its impact on net external demand. but while we can try to make allowance