Account of monetary policy in 2013

Date 20/03/2014

Every year, the Riksdag Committee on Finance examines and assesses the monetary policy conducted by the Riksbank during the immediately preceding years. Prior to the assessment made in the spring, the Riksbank compiles the report Account of monetary policy. In the Account for 2013 the Riksbank observes that:

Inflation below the Riksbank's inflation target of 2 per cent

Economic activity weakened unexpectedly and substantially at the end of 2011. The weak economic activity persisted during 2012, which contributed to low inflation in 2013. CPI inflation was 0 per cent, while CPIF inflation, which excludes the effects of interest-rate cuts, was 0.9 per cent. Inflation expectations in the long term were close to 2 per cent, which shows that the public has confidence in the inflation target.

 

Over the year, employment continued to increase and GDP growth was 1.5 per cent, which was higher than in 2012.

The Riksbank revised down its inflation forecasts and cut the repo rate

As a consequence of the low inflationary pressure, the Riksbank gradually revised down the forecasts for inflation in 2013. To counteract the weaker economic activity and bring inflation up towards the target in the longer run, monetary policy remained expansionary during the year and in December the Riksbank cut the repo rate to 0.75 per cent.

 

At the same time, high household indebtedness remained a risk to sustainable long-run development. Monetary policy in 2013 involved balancing how low the repo rate needed to be for inflation to approach the target soon enough against the increased risks linked to household debt that could stem from a low interest rate.

Executive Board agreed that monetary policy needed to be expansionary

The Executive Board of the Riksbank agreed that monetary policy needed to be expansionary, but there were differing opinions as to how expansionary it should be. The most important dividing line concerned the consideration monetary policy should give to risks linked to the high household indebtedness.

The low inflation surprised most analysts

During 2012, all of the forecasters were expecting a higher inflation rate in 2013 than the actual outcome and the differences between the forecasts were very slight.

Inflation was also low in other inflation-targeting countries

Inflation was also low in other countries with inflation targets during 2013. For these countries it was the rule rather than the exception that inflation undershot the target in 2013.