would like to briefly describe why the riksbank is pursuing the policy it is pursuing today. the low repo rate is essentially due to the fact that inflation has been surprisingly low and has not risen as the riksbank and other commentators expected. during the first half of 2013 for example, the average of swedish forecasters expected inflation, excluding interest - rate effects, to be a little less than 1. 5 per cent in 2014. the outcome was almost one percentage point lower. the period where inflation has been below the target has gradually become longer and longer. even the more stable underlying inflation measure, where both interest - rate effects and volatile energy prices are excluded, has been below 2 per cent since january 2010 ( see figure 2 ). according to the riksbank ’ s forecast, it is expected to reach this level again in autumn 2016, provided that monetary policy is very expansionary. this means nearly seven years below the target, at least five of which have been clearly below it. se for example williams ( 2009 ), blanchard et al. ( 2010 ), calmfors ( 2013 ), ball ( 2014 ), krugman ( 2014 ), and rosengren ( 2015 ). see cote ( 2014 ) and kryvtsov and mendes ( 2015 ). bis central bankers ’ speeches figure 2 inflation has been low for a long time annual percentage change note : cpif is cpi with fixed mortgage rate. sources : scb and the riksbank. once inflation had undershot the target for a while, inflation expectations began to fall. economic agents did not expect inflation to meet the target even five years ahead. in other words, a risk began to build up that the role of the inflation target as a benchmark for pricesetting and wage formation would begin to weaken – that the nominal anchor that has been an important part of the favourable developments in sweden since the 1990s crisis would no longer hold. as the basis of an inflation - targeting policy is that the long - run inflation expectations are anchored around the target, this development has gradually made it more important to bring up inflation. the riksbank has therefore needed to focus more and more on its main task, to maintain confidence in the inflation target, while the scope for taking other issues into consideration has become more and more limited. it is these considerations which form the basis for the policy being pursued by the riksbank today. it is not a question of a rigid fixation with achieving exactly 2 per

the expectations i spoke about earlier, we end up with a negative self - reinforcing effect which means we then need to fight much harder to meet the inflation target. this would mean that it would be even longer before the repo rate could rise to a more normal level. there is also reason to ask how much higher the critics think the repo rate should be. should it be at 0, 1 or perhaps 2 per cent? the impression one gets is that the repo rate is assumed to be the main tool for relieving the problem of rising debt and housing prices. however, for this to be possible a repo rate considerably higher than the one we have today would likely be required. and the more the swedish interest rate exceeds international rates, the more inflation and growth will be dampened, in part via the usual interest rate channel and in part via a stronger krona in the way i have just described. this in turn means a greater risk that inflation will remain below the target and that inflation expectations will become stuck at a level that is too low. a discussion of these kinds of central considerations is typically missing from the criticism put forward. in the international discussion, the central banks ’ policy rates are currently seen as quite blunt tools when it comes to curbing the rise in household debt and housing prices. the reason for this is that the interest rate cannot be targeted at the problem area in question, but has a much broader impact on the economy, such as companies ’ investments and, via exchange rate effects, their export opportunities. 11 it does not come as much of a surprise therefore that no central bank has so far used the interest rate weapon to any great extent for this purpose. there is currently a relatively high level of agreement that macroprudential policy and well - designed financial regulation should be the first line of defence in preventing financial imbalances from accumulating. 12 the tolerance band was not a target range as i mentioned, one proposal has been that the tolerance band for the inflation target should be reintroduced, as it is assumed this would make it easier for the riksbank to raise the repo the broad impact of the interest rate is occasionally highlighted as an advantage, however. unlike macroprudential policy measures which can sometimes be circumvented, “ the interest rate gets into all the cracks ” ( stein, 2013 ). see imf ( 2015 ). bis central bankers ’ speeches rate. it could be helpful to remind ourselves here