Minutes of the Monetary Policy Meeting held on 26 October 2016
At the monetary policy meeting on 26 October, the Executive Board held the repo rate unchanged at −0.50 per cent and assessed that the repo rate needs to be held at this level for six months longer than was forecast in September. The probability that the repo rate will be cut further has increased. The purchases of government bonds will continue during the second half of 2016, as decided in April. Prior to the monetary policy meeting in December, the Executive Board is prepared to extend the purchases of government bonds.
It was noted at the meeting that the Executive Board was unanimous on the picture of economic developments and the outlook for inflation described in the draft Monetary Policy Report. Since the monetary policy meeting in September, real economic developments in Sweden and abroad have been largely in line with the Riksbank's forecasts. The recovery abroad is continuing at a fairly moderate pace and inflation is rising from a low level, supported by very expansionary monetary policy. However, international developments are still marked by uncertainty.
Monetary policy has contributed to strong economic activity in Sweden and to a rise in inflation and inflation expectations. The conditions are good for a continued rise in inflation. However, the weak inflation outcomes in recent months illustrate the uncertainty over how quickly inflation will rise. The Riksbank now assesses that it will take longer for inflation to reach 2 per cent. The upturn in inflation therefore needs continued strong support.
The Executive Board were unanimous that the repo rate should be held unchanged at –0.50 per cent and assessed that it needed to remain at this level for six months longer than was forecast in September. The probability of the repo rate being cut further has also increased.
The Riksbank will continue buying government bonds during the second half of 2016 in accordance with the plan the Executive Board decided on in April. Until further notice, maturities and coupon payments on the holdings in the government bond portfolio will be reinvested. Moreover, prior to the monetary policy meeting in December, the Executive Board is ready to extend the bond purchases, but as the current programme runs until the end of the year, there is scope to await further information that can affect the decision.
The recent developments in inflation were also discussed at the meeting. The relationship between resource utilisation and inflation was also mentioned. It was noted that the Swedish economy is better-equipped now than it was one year ago, with stronger economic activity, higher inflation and inflation expectations close to 2 per cent. But Sweden is a small, open economy and we therefore need to relate to what is happening in the world around us. Events there can lead to monetary policy needing to be adjusted to safeguard the upturn in inflation. Moreover, concerns were expressed regarding the growing household indebtedness and it was pointed out that there is still a need to combine measures within different policy areas to obtain a long-run sustainable economic development in Sweden. In addition, there were comments on various aspects of the formulation of monetary policy.