Minutes of the Monetary Policy Meeting held on 20 April 2016

At its monetary policy meeting on 20 April, the Executive Board of the Riksbank decided to purchase government bonds for a further SEK 45 billion during the second half of 2016. The purchases include both nominal and real government bonds, corresponding to SEK 30 and SEK 15 billion, respectively. The repo rate was held unchanged at -0.50 per cent. There is still a high level of preparedness to make monetary policy even more expansionary if this is needed to safeguard the inflation target.

It was noted at the meeting that the Executive Board agreed on the picture of economic prospects and the inflation outlook described in the draft Monetary Policy Report.

Several members mentioned risks linked to uncertainty on the financial markets and to economic prospects abroad. The members also noted that international inflation is low and that several central banks are expected to conduct very expansionary monetary policy.

In Sweden, resource utilisation is currently close to normal, and economic activity is expected to continue to strengthen. Inflation has been slightly higher in recent months than the forecast in February. But although the forecast for inflation has been revised up slightly for the next few months, it is expected to be lower than the target for 2016, too.

The Executive Board agrees that monetary policy needs to continue to be very expansionary. However, the members have slightly different views as to whether it is appropriate to extend the government bond purchasing programme.

On the one hand, the Swedish economy is characterised by high growth and an ever-stronger labour market, and inflation has been higher than expected for several months. Rising resource utilisation also creates good conditions for a continuation of the upward trend in inflation. This may be an argument for not prolonging government bond purchases.

On the other hand, the upturn in inflation is uneven and to a high degree has been driven by a weak krona. A continued positive economic development in Sweden is therefore needed to safeguard the upward trend in inflation. At the same time, uncertainty in the wider world remains and several central banks are conducting a very expansionary monetary policy. The inflation forecast is thus highly sensitive to various international factors. This is an argument for extending the government bond purchasing programme to mitigate the risk of the krona appreciating too quickly, which would lead to weaker demand for Swedish exports and lower inflation.

A majority of the Board members considered it appropriate to continue buying government bonds for a further SEK 45 billion during the second half of 2016. To achieve a broad impact on different interest rates, the purchases should include both nominal and real government bonds corresponding to SEK 30 billion and SEK 15 billion respectively. Until further notice, maturities and coupons from the portfolio of both nominal and real government bonds will be reinvested. One board member considered that monetary policy is sufficiently expansionary for inflation to rise towards 2 per cent, and that it is therefore unnecessary to extend the purchases of government bonds.

The Executive Board was unanimous in holding the repo rate at –0.50 per cent, and, as in February, expects to begin raising the interest rate slowly in mid-2017.

The Executive Board is also unanimous as regards having a high level of preparedness to make monetary policy even more expansionary, even between ordinary monetary policy meetings, if this is needed to safeguard confidence in the inflation target.

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