1 - 2 - 2 - 3 - 3 - 4 - 4 - 5 - 5 - 6 - 6 euro area germany advanced economies source : the imf the links that exist between the levels of debt, interest rates and growth also suggest that a high level of public debt entails risks. for example, a high level of debt tends to lead to higher long - term interest rates, as shown in figure 3. 3 a high level of debt may also lead to lower growth due to increased vulnerability to future crises, or because taxes may have to be increased to finance the debt. 4 the higher the level of debt, the more the country must set aside to make the interest payments on its debts. these are a couple of the reasons why the term cyclically - adjusted deficits here refers to public net lending adjusted for cyclical effects. the group advanced economies includes the united states, the euro area, japan, the united kingdom, canada, south korea, australia, taiwan, sweden, switzerland, hong kong, singapore, the czech republic, norway, israel, denmark, new zealand and iceland. see also baldacci, emanuele and kumar, manmohan s. ( 2010 ), fiscal deficits, public debt and sovereign bond yields. working paper no. 10 / 184. imf. for more details see fiscal monitor update, november 2010. imf or kumar, manmohan s. and woo, jaejoon ( 2010 ), public debt and growth. working paper no. 10 / 174. imf. bis central bankers ’ speeches most studies show that fiscal - policy tightening, or consolidation measures, have positive effects, at least in the longer term. figure 3. it pays to consolidate 10 - year government bond rates and gross debt as a percentage of gdp 2011, per cent 10 - year government bond rate austria germany belgium spain finland france greece ireland italy netherlands portugal gross debt as percentage of gdp sources : eurostat, reuters ecowin the current account shows how important it is to consolidate of course, identifying an appropriate rate for budget consolidation measures is no easy task in a situation in which deficits are large and growth is weak. one way of addressing the question of when it is appropriate to consolidate is to look at the economy as a whole, not just at the public sector. in this context, the current account is an important measure for illustrating the state of the economy in relation to the rest of the world. a substantial current - account deficit indicates that domestic expenditure

i therefore voted with the majority to cut the repo rate by a further 0. 25 percentage points. since then, we have learned that the outcome for gdp growth in the last quarter of 2011 was even worse than we expected at the time of the monetary policy meeting in february. this is largely because exports were even weaker than expected. however, we have also received outcomes for foreign trade in january which indicate that exports strengthened again after the turn of the year. we will receive further clues as to the current state of the economy before the next monetary policy meeting in april and will then review how this new information affects monetary policy. as i said earlier, in the slightly longer term the riksbank ’ s latest forecast is that there will be a gradual recovery in the euro area and the global economy following a weaker 2012. this will of course affect sweden too. it is expected that resource utilisation will increase, the rate of wage increases will accelerate and underlying inflation will gradually rise as growth improves. the latter is illustrated in figure 6. bis central bankers ’ speeches figure 6. gradually rising inflationary pressures the cpi, cpif and cpif excluding energy, annual percentage change cpif excluding energy cpif cpi - 1 - 1 - 2 - 2 note. the cpif is the cpi with a fixed mortgage rate. sources : statistics sweden and the riksbank low real repo rate for some time to come we will need to gradually tighten monetary policy when inflationary pressures and resource utilisation increase. the riksbank ’ s repo - rate path from february therefore indicates repo - rate increases during the course of 2013 and 2014. nevertheless, this forecast still means that monetary policy will remain highly expansionary in the years ahead. figure 7 shows that the real repo rate is expected to be negative in 2012 – 2013 ; that is for a substantial part of the forecast period. if this proves to be the case, won ’ t there then be a risk of monetary policy being too expansionary? won ’ t we perhaps risk overheating, a too high rate of inflation or an unsustainable development of household debt? this is of course not impossible, but at present i do not think that it is very likely. to explain how i have reached this conclusion i would now like to briefly summarise how i view some of the risks associated with a very low real interest rate. bis central bankers ’ speeches figure 7. low real repo rate for some time to