Repo rate left unchanged at 2.75 per cent
At its meeting on Thursday, 14 August, the Executive Board of the Riksbank decided to leave the repo rate unchanged at 2.75 per cent. This decision, which will apply from Wednesday, 20 August, is based on the picture of future inflation presented in the June Inflation Report and at the monetary policy meeting in July, as well as on new information on economic developments received since then.
The assessment in the June Inflation Report was that a slow international recovery would occur during the second half of 2003. The statistics received since then largely support this picture. As yet, there are no clear signs of a turnaround in the euro area. Prospects for the USA, on the other hand, look somewhat brighter than they did in June and July. Japan and South East Asia are also showing signs of a recovery. Share prices on the larger stock markets have also risen. This could indicate an increased optimism regarding future developments, which could in turn lead to increased willingness to consume and invest. All in all, the assessment of growth in the industrial nations remains largely unchanged since June and July.
National accounts data indicates a slightly stronger growth rate in Sweden during the first half of the year than anticipated in the June assessment. Other new statistics, such as the purchasing managers index and the retail trade index, also imply a change for the better in business activity. However, the picture is not clear-cut. The July business tendency survey from the National Institute of Economic Research shows, for instance, a deterioration in manufacturing activity, a continuing negative climate in construction and a slowdown in retail trade. Nevertheless, the Riksbank's assessment is that growth will be higher this year than was forecast in June. In addition, the repo rate cuts in June and July, totalling 0.75 percentage points, are expected to stimulate the economy over the coming two years. All in all, resource utilisation is expected to be slightly higher during the entire forecast period than was assumed in earlier assessments.
All in all, UND1X inflation has fallen roughly as expected in the June Inflation Report. In July, CPI (consumer price index) inflation amounted to 1.8 per cent and UND1X inflation to 2.3 per cent. In the short term, consumer energy prices are expected to fall less than was forecast in June and July. The dry summer has led to spot prices and forward rates on the Nordic electricity exchange Nord Pool beginning to rise once again, and an unexpectedly severe fall in the level of oil stocks in the USA has led to oil prices being higher than anticipated. Inflation is expected to be slightly higher two years ahead than was assumed in the Inflation Report and at the monetary policy meeting in July. This is because of a slightly higher level of resource utilisation during the forecast period. UND1X inflation is expected to be roughly in line with the target level towards the end of the forecast period, regardless of whether energy prices are included in the calculations. Given this, the Executive Board decided to leave the repo rate unchanged.
The future direction of monetary policy will depend as usual on the new information received and on how this affects the overall assessment of inflation prospects in the coming years.
The minutes of the Executive Board's monetary policy discussion from yesterday's meeting will be published on 28 August 2003.