november and december the riksbank therefore reduced the repo rate from 4. 10 to 3. 40 %. the early months of this year were marked by continued repercussions of the asian crisis in the world economy, with weaker international demand. in order to prevent this from leading to a dampening of economic developments in sweden and an even lower rate of inflation, in february and march the riksbank reduced the repo rate in two more steps to 2. 90 %. since then the situation has stabilised. an easing of monetary policy in many parts of the world as well as in sweden has been an important factor behind the better tendencies in recent months and the more positive forecasts. even though the statistics show a stronger economic trend, inflation has been in line with the riksbank ’ s forecasts. for this reason the repo rate has been kept unchanged since march. in august the 12 - month rate of cpi inflation was 0. 6 % and inflation ’ s underlying rate, measured by undix, was 1. 5 %. it is changes in indirect taxes and subsidies, together with house mortgage interest expenditure, that are continuing to result in an underlying rate of inflation that is higher than cpi inflation. economic prospects from 1999 to 2001 we are now moving into a period of strong growth, externally as well as in sweden. as regards the international picture, the riksbank judges that annual growth in the oecd area up to the end of 2001 will amount to not quite 2. 5 %. it looks as though effects of the asian crisis are now dying away and that emerging market growth will become stronger in the next two years, above all in the crisis - hit countries in southeast asia but to some extent also in latin america and eastern europe. in japan, too, the earlier risk of negative growth has turned into cautious optimism about an upturn. prospects for the euro area have likewise improved, with a recovery in manufacturing and stronger consumer confidence. in the united states there seems to have been a further extension of the upward phase this year and a slowdown may be softer and more cautious than anticipated earlier. even with stronger international growth, external price pressure is likely to be weak. for one thing, after the asian crisis there is still some unutilised capacity on the whole in the global economy. other factors are increased price competition and an expected appreciation of the krona. economic prospects in sweden also look brighter. besides the positive cyclical signals from abroad

and their expected effects on the swedish economy, there is the stronger growth of domestic demand. firms as well as households are optimistic about the future. there are a number of reasons for this. real wages and employment are rising rapidly and public sector finances are becoming stronger. fiscal policy in 2000 and 2001 is now assumed to be somewhat more expansionary. all in all, gdp growth is judged to be 3. 6 % in 1999, 3. 8 % in 2000 and 3. 0 % in 2001. these assessments are based on the technical assumption that the repo rate is kept unchanged. the strong growth trend means that in the coming years the economy ’ s unutilised resources at present will be utilised more quickly than the riksbank envisaged earlier. inflation is accordingly judged to move up somewhat faster than the riksbank assumed earlier. in the main scenario the underlying rate of inflation, measured as undix, is judged to be 1. 8 % twelve months ahead and 2. 1 % after twenty - four months. cpi inflation is judged in turn to be 1. 1 % after twelve months and 2. 0 % in twenty - four months ’ time. thus, cpi inflation will be moving closer to underlying inflation. one reason for this is that the downward effect on inflation from house mortgage interest expenditure is diminishing. in other words, just as the previous marked fall in interest rates held back cpi inflation so that it was well below the underlying trend, so house mortgage interest expenditure is now tending to bring them closer together. as i have pointed out before to this committee, monetary policy ought to disregard these direct effects of interest rates because repo rate adjustments mean that they are accentuated. it is also for this reason that the riksbank is currently focusing monetary policy on inflation ’ s underlying rate, measured as undix. transitory factors – changes in indirect taxes, subsidies and house mortgage interest expenditure – are judged to have a downward cpi effect of 0. 5 percentage points in one year ’ s time. the contribution from interest expenditure is still negative because the process whereby house mortgage loans at high rates are renewed at the present lower level is still in progress. as the earlier house mortgage loans had a long duration, this process takes time. in two years ’ time, however, the cpi contribution from transitory factors is judged to be an upward effect of 0. 1 percentage point. the fact that so far, at least, the strong growth has not generated an acceleration