. another uncertainty factor concerns the situation in the euro - area banking sector. the european central bank ’ s review of banks ’ assets ( asset quality review ) and accompanying stress tests, which will be published soon, can strengthen confidence in the banks and thereby hopefully give new vitality to the banking sector, which has so far hampered a muchneeded recovery through restrained credit granting and high interest rates on bank loans. but the problems in the portuguese, bulgarian and austrian banks that have surfaced over the summer imply that some problems remain and there is a risk that the review will either point to extensive problems or be perceived as insufficient. another extremely important condition for monetary policy in sweden is the shape that monetary policy abroad will take and what effects it will have on growth, inflation and exchange rates. in many parts of the world, and not least in the euro area, low inflation over a long period of time has come as a surprise to central banks and others. the european central bank ( ecb ) has expressed concern over falling inflation expectations and recently cut its policy rate to 0. 05 per cent, at the same time as declaring that this is the lowest possible policy rate for them. moreover, they have announced several measures aimed at stimulating lending to households and companies. but it is still uncertain exactly what the measures will be and how extensive they will be. moreover, there is little or no previous experience of these interest rate levels and measures in the euro area. it is therefore difficult to assess what effects the ecb ’ s measures will have on gdp and inflation in the euro area and thus, ultimately, what they will mean for inflationary pressures here in sweden. one complicating factor is that the central banks in the united kingdom and the united states appear to be taking a different direction with their monetary policy than the ecb. their monetary policies are diverging. one reason why we are interested in expectations of policy rates and supplementary measures in other countries is that they influence interest in assets denominated in swedish krona and therefore ultimately the development of the krona exchange rate. interpreting exchange rate fluctuations is often very difficult, but the changes in the expectations of the european and us central banks probably contribute to explaining the recent weakening of the krona in relation to the dollar and the strengthening against the euro. bis central bankers ’ speeches it is difficult to foresee the net result for inflation in sweden, as that is dependent on both how much the various exchange rates alter and what effects this in turn has

partners is currently fairly weak, therefore, and this has contributed to dampening growth in sweden. on the other hand, demand from swedish households has developed positively. in recent years, household incomes have increased at a good pace and consumption and housing investment have shown strong development. since our previous forecast at the beginning of september, new revised gdp statistics for the second quarter showed a somewhat higher gdp and a somewhat stronger development in consumption and investment than we had reason to expect, given the preliminary statistics. employment has also risen somewhat since the start of the year, and if economic activity strengthens as we are expecting, the demand for labour will rise. then unemployment will fall and the employment rate, that is, employed as a percentage of the population, will attain roughly the same level as before the financial crisis. when the labour market situation improves, we will also see gradually higher wage increases. bis central bankers ’ speeches even if the situation is currently uncertain, we thus see signs that economic activity will gradually strengthen, both in sweden and abroad, and thus companies will have greater scope to raise their prices. however, we believe that one condition for growth, employment and inflation to rise in accordance with the forecasts is that we continue to hold the repo rate at a very low level. this forecast for the repo rate – what we call the repo - rate path – is, however, a highly uncertain forecast, at least with regard to the end of the forecast period. this relates to something as self - evident as the fact that we live in a world full of uncertainty, not least with regard to the preconditions for monetary policy – for example, developments abroad, inflationary pressures, the level of unutilised resources in the economy and coming measures in the field of economic policy. here there are many factors contributing to making our forecasts uncertain and our repo - rate decisions difficult, and i shall touch on some of these problems. unclear international developments – unclear conditions for monetary policy there is greater geopolitical uncertainty in our immediate area than there has been for a long time. the ongoing conflict in ukraine could escalate, trigger more far - reaching sanctions, put further downward pressure on demand in parts of europe and push energy prices up or down. we are monitoring developments closely, taking note of other analysts ’ assessments and working with different scenarios, but it is of course difficult to assess the probability of an escalating conflict and to quantify what potential effects it might have