housing loan markets are different from in sweden, people buy one or more additional properties in the hope that they will rise in value, rather like buying equity or other financial assets. this of course puts upward pressure on prices, but also downward pressure when prices rebound and many people want to sell. in both australia and the united kingdom, prices have levelled out in recent months after short - term interest rates rising in these countries as their central banks increased their key rates. however, in sweden both household borrowing and house prices appear to be continuing upwards, partly as a result of expectations of continued low interest rates. moreover, the competition between banks has increased, which has led to more aggressive marketing, lower collateral requirements and longer amortisation periods. it is possible to begin to detect a scent of the reckless 1980s, one cannot deny it. there is therefore every reason to increase our vigilance, and we have recently emphasised the developments in credit and house prices as a further argument, although in my opinion perhaps not a particularly strong one, against more expansionary monetary policy. it is nevertheless important to point out that so far we have seen no signs of unwarrantedly large price rises and overheating in the housing market ; in sweden prices are still essentially governed by the normal supply and demand relationship. however, taking into account developments in asset prices is a further argument in favour of interpreting the inflation target with some degree of flexibility. households and financial stability let me now for a moment leave the inflation target and concentrate on some reflections regarding the riksbank ’ s other objective, to promote a safe and efficient payments system. here the concern is whether household borrowing entails any risks for the banking system and thereby for financial stability. when it comes to rapidly rising property prices and growing bank borrowing, it is easy to relate it to the developments at the beginning of the 1990s and the banking crisis they triggered. however, developments were different then in certain essential aspects. firstly, the majority of the banks ’ losses were not caused by housing loans – this constituted a very small part – but by lending against collateral in commercial properties. commercial property prices rose more than housing prices prior to the crisis. this has not been the case in recent years ; quite the reverse. the commercial property market has been subdued since the economic downturn after 2000, with low prices and high vacancy ratios and only began to improve over the past year. the banks ’ risks in this market appear very moderate at present. secondly, although

. the oil price has been unexpectedly high, although recently it has fallen slightly. moreover, industrial activity appears to have weakened slightly, both in sweden and abroad. we therefore came to the conclusion in april that growth in sweden would be somewhat weaker than was anticipated in the march inflation report. since then, we have seen statistics showing that growth in germany was slightly stronger than expected during q1, and that the downturn noted in the united states in march appears to have been temporary. we had anticipated lower growth in sweden ’ s net exports, but exports of goods appear to be increasing even less than was forecast. however, good growth in real incomes and low interest rates will contribute to favourable growth in household consumption. the labour market remains relatively weak, and our forecast is based on employment strengthening during 2005. at the same time, we can see rising price pressures in some industrial nations, particularly the united states, which are partly – but not solely – a consequence of the high oil prices gaining greater impact in the production and consumer segments. it is important to monitor whether the slackening tendencies seen in economic activity recently are temporary or more persistent. if we were to see a notably poorer development than we envisage now, such as much lower growth than forecast, the arguments in favour of cutting interest rates would in my opinion take on greater substance. we will be considering all of these factors at our next monetary policy meeting on 20 june. thank you!