meeting on 11 november to conduct monetary policy in a less expansive direction. the repo rate was therefore increased by 0. 35 percentage points to 3. 25 %. as has been said, the difficult balance to be struck in the present situation is to adjust the instrumental rate at a rate that does not interrupt the upswing in capacity utilisation but does it with sufficient foresight to avoid a drastic rise. we do not want to experience “ stop - go ” policies again. let us not forget the late 1980s and early 1990s. that period represents a tragic failure for economic policy, a failure that cost sweden destruction of both physical and human capital. earlier in my speech, i pointed to the imbalances in wage formation that could lead to inflation accelerating if they are handled incorrectly. this would make monetary policy tightening necessary that would risk interrupting growth and structural transformation, because the inflation target is mandatory and will not be given up. the riksbank has both the instrument and the political mandate to achieve the target of 2 % ’ s inflation. the issue then is not whether the inflation target will be met but the consequences that achieving the inflation target will have for the rate of growth and employment in the medium term. the riksbank is responsible for achieving the inflation target, but responsibility for the positive development that we can now see in front of us being sustained over a longer period, is shared by everyone in sweden.

. when capacity in the economy is not fully made use of and unemployment is high, the interest rate may - on condition that inflation expectations are in line with the target - need to be below its neutral position in order to stimulate demand so that it increases more quickly than capacity utilisation. in this way, unemployment can be taken up in production, capacity utilisation increase and inflation be adjusted upwards to the target. in the same way, the interest rate needs to be above its neutral position, when capacity utilisation is full and demand is tending to grow more quickly than the utilisation of capacity. the economy then needs to be cooled down to prevent inflation exceeding the target. it is the task of monetary policy to control short interest rates so that demand pressure is adjusted to capacity growth to achieve the inflation target. the growth in capacity in the long - term is determined by other factors, however, than monetary policy. the level of the neutral interest rate varies over time. according to some theories on optimality, a very rough rule of thumb is that the neutral real interest rate in the long term and when the economy is in balance is near the long - term growth of gdp. in germany, real short - term interest rates have since 1980s been around 3. 3 % while the corresponding rates in the usa are around 3. 5 %. while it is not possible to specify a neutral level for swedish interest rates, there is no doubt that monetary policy even after last week ’ s increase will continue to have an expansive effect on demand. in practice, monetary policy decisions are based on an overall assessment of a number of inflation indicators. the interest rate reductions during the past year from 4. 35 % in june 1998 to 2. 9 % in march this year took place with a view to stimulating demand, increase employment and increase capacity utilisation in order in this way to bring inflation up to the goal of 2 %. the riksbank ’ s most recent inflation report makes the assessment that there are unused resources in the present situation but that the available resources will gradually be taken into use during the forecast period. the statistics published thereafter give a somewhat fragmented picture but, taken as a whole, do not occasion any change in the view of growth prospects in the economy. the assessment of the riksbank is now that inflation in 1 to 2 years will be marginally higher than in the most recent inflation reports. in the light of this, the riksbank made the assessment at its