and labour threaten to gain the upper hand and jeopardise price stability is a gradual process. that makes it difficult to tell exactly when the imbalances constitute a genuine problem. observers and those who decide economic policy have to assemble the pieces of this puzzle. in an economy that is approaching a strained situation in resource utilisation, signs that imbalances are beginning to build up will appear with increasing intensity and frequency. as more and more pieces of the puzzle fall into place, they ultimately provide a basis for action. the whole of this process is complicated by the time lag before monetary measures elicit effects. our premise is that the full effect of an interest rate adjustment materialises after one to two years. so measures taken today would not have their full effect until some time during 2002. monetary policy therefore involves balancing the risks of acting too soon against those of acting too late. acting prematurely is liable to lead to unemployment being higher than it need be. if the riksbank acts too late, on the other hand, price and wage increases may already have got under way. in that case, the economy may ultimately land in a recession, perhaps with even higher unemployment. fortunately, it is not a question of either / or. a monetary policy adjustment can be decided gradually, with stepwise changes in the repo rate. consequently it is always possible to compare forecasts with outcomes, assess the policy stance continuously and make the adjustments that are considered to be necessary. if monetary policy is successful, a foundation is laid, not only for low, stable inflation in line with the target and the riksbank ’ s statutory objective, but also for a stable long - term growth of output and employment. seen from this angle, low inflation, besides being our objective, is accordingly a means of trying to achieve a stable economic development in general. that is something which should be underscored. inflation prospects in an analysis of the situation in the run up to the next inflation report, due to be published on 7 december, the following can be noted : • the price trend to date is approximately in line with the forecast that was presented in the october report. • as expected, there have been signals that international economic activity is tending to become somewhat slacker. the pattern is clearest in the united states but even some slowing of growth in europe seems likely in the coming years. • in sweden, too, there are indications that activity has become somewhat calmer. both households and firms

urban backstrom : the swedish economy speech by mr urban backstrom, governor of sveriges riksbank and chairman of the board of directors and president of the bank for international settlements, to the swedish shareholders association, in stockholm on 28 november 2000. * * * first a word of thanks for the invitation to talk to you this evening. my topic is the swedish economy and monetary policy. provided nothing unexpected occurs, in my opinion it will soon be time to raise the repo rate. it is, however, difficult to tell just when this will happen. the board is made up of six members, each with their own opinion of what is the most appropriate monetary stance and a say in the final decision. but this evening i would like to elaborate on why i personally believe it will soon be time to raise the repo rate. in order to put the present monetary policy situation in perspective, we need to look back some years into the past. during 1996, when confidence had been established in economic policy ’ s overall commitment to price stability and the consolidation of the public finances had begun, the riksbank was in a position to initiate a comparatively marked reduction of the repo rate. this had been preceded by a period with a tight monetary stance, when the repo rate had reached a high of almost 9 %. when the 2 % inflation target was introduced, few observers believed at first that trend inflation would ultimately land up around 2 %. we would do well to remember, however, that people ’ s perceptions of the future are often shaped not so much by words as by actions. so, after a series of purposeful decisions by the government, the riksdag ( sweden ’ s parliament ) and the riksbank, economic policy ’ s general commitment to macroeconomic stability began to inspire confidence. economic policy ’ s credibility gave the riksbank greater freedom to act the growing confidence accordingly meant in turn that, without jeopardising the objective of price stability, the riksbank was able to lower the repo rate relatively markedly, from almost 9 % to just over 4 %. interest rates for longer maturities also fell. this led, as we have all seen in recent years, not just to higher gdp growth but also to a more uniform development of demand in different sectors. when the cyclical upswing began towards the end of 1993, most of the growth came from the export sector. however, lower levels of interest rates benefited swedish households and firms by