Separate minutes of the Executive Board meeting on 16 August 2000

No. 13

 

Present:

Urban Bäckström, Chairman
Lars Heikensten
Eva Srejber
Villy Bergström
Kerstin Hessius
Lars Nyberg
–
Javiera Aguilar (§1)
Kerstin Alm
Hans Dellmo
Kurt Gustavsson (§1)
Björn Hasselgren
Olle Holmgren (§1)
Leif Jacobsson
Hans Lindblad
Christina Lindenius (§1)
Fredrika Lindsjö
Tomas Lundberg
Staffan Viotti

 

§1. Monetary policy discussion

It was noted that Hans Dellmo and Fredrika Lindsjö would prepare draft minutes of §§1 and 2 on the agenda for the meeting.

 

The meeting began with discussions of the factors in economic developments in Sweden and the rest of the world that are of importance for inflation prospects and the formation of monetary policy (section 1). The discussion of each aspect started from analyses and assessments compiled by the Monetary Policy Department on the basis of the technical assumption that the repo rate would remain unchanged at 3.75 per cent until mid 2002. In conclusion the members of the Executive Board summarised their views of inflation prospects (section 2) and presented their conclusions about the monetary policy situation (section 3).

 

1. Economic developments in Sweden and elsewhere

1.1 Price tendencies in Sweden

The Board noted that in July the 12-month rate of both UND1X and CPI inflation was 1.2 per cent. CPI inflation was accordingly 0.1 percentage point higher than had been assumed in the Inflation Report, while UND1X inflation was in line with the forecast.

 

A large proportion of the registered inflation came from rising prices for domestic heating oil and petrol. Excluding these items, the 12-month rate of UND1X inflation in July was 0.5 per cent or 0.2 percentage points lower than forecast.

 

Producer prices rose 0.5 per cent from May to June, which gave a 12-month change figure of 3.7 per cent. The comparatively high rate came from continued price increases for energy-related goods and, to some extent, intermediate goods. For both consumer and investment goods, on the other hand, producer prices were lower than a year earlier. The July level of home market prices for consumer goods was scarcely 2 per cent higher than a year earlier, which was in line with the assessment in the latest Inflation Report

 

1.2 International activity and inflation

In the June Inflation Report it was judged that GDP growth in the OECD area would average just over 3 per cent this year, just under 3 per cent in 2001 and 2.5 per cent in 2002. During this period inflation was judged to accelerate gradually to an average in 2002 of 2 per cent.

 

In the United States the signals about economic activity that recent statistics convey are mixed. The Board noted that the general picture continues to point to an incipient slowdown but that after the surprisingly strong Q2 outcome for GDP, growth this year may be higher than forecast earlier. However, the weak tendency in private consumption may be a sign that the Federal Reserve’s interest rate hikes have started to elicit the intended effect.

 

Two Board members noted that as Q2 growth had been generated above all by stock accumulation and public consumption, there were grounds for believing in a soft landing for the U.S. economy. Moreover, the outcome for inflation in the United States points to a higher rate than was assumed in the June forecast, though to a large extent it had to do with the price rise for crude oil.

 

The Board noted that growth this year in the euro area also looks like being somewhat stronger than foreseen in the Inflation Report, in that Q1 growth has been revised upwards and optimism remains high among firms as well as households. The consumer price rise to date this year has somewhat exceeded expectations and, together with a more rapid economic upswing, this suggests that inflation this year may be somewhat higher than assumed earlier.

 

In the United Kingdom, falling house prices and decreased household optimism suggest the beginning of a slowdown. But rising activity in manufacturing and service industries in July has added to uncertainty about the future. Notwithstanding the high level of activity, in the past year inflation has been below the 2.5 per cent target.

 

Economic activity in the Nordic area appears to be growing more rapidly than was assumed in the June Inflation Report. In all the Nordic countries, the oil price rise has led to price pressure being somewhat stronger than allowed for in the June Report.

 

All in all, the Board found that the Inflation Report’s picture of a strong international economic upswing still holds. The recent tendencies suggest, however, that in the current year international growth may be somewhat higher than anticipated. But there were not considered to be strong grounds for revising the forecast international price trend. In the opinion of one Board member, the recent statistics favoured the view that next year’s international growth will also be higher than assumed earlier; such a path would entail price increases that are somewhat higher than forecast earlier.

 

1.3 Financial markets

The Board noted that in the interval since the Inflation Report was compiled in June, international bond rates have been relatively stable. The Swedish ten-year rate fell sharply in June, mainly because the National Debt Office redeemed bonds in connection with the sale of Telia shares; bond rates have tended to move up since then and their current level is much the same as at the time of the June Report. The differential with German interest rates has become marginally wider and amounts to about 0.1 percentage point. To date in the third quarter the average level of the 10-year rate has been rather more than 0.1 percentage point lower than assumed in the Inflation Report. Against this background, the Board considered that in the near future the long-term interest rates will be somewhat lower than was assumed in the Inflation Report.

 

Market prices indicate that players are counting on further interest rate increases by the Federal Reserve and the ECB. But in view of statistics implying a continuation of good productivity growth and lower unit labour costs than a year earlier, the expectations of higher US rates have become less pronounced. Players expect that in the United Kingdom there will be one further increase in the instrumental rate this year. As regards Swedish monetary policy, survey data as well as market prices indicate expectations of a repo rate increase this autumn. In the longer run, surveys show expectations of the repo rate being increased to 4.4 per cent six months ahead and to almost 5 per cent after twelve months.

 

The Swedish krona’s TCW index has fluctuated between 119 and 125 in recent months and is currently about 1 per cent weaker than at the time of the June Inflation Report. The depreciation has occurred mainly against sterling and the U.S. dollar. To date in the third quarter the average level of the TCW index has been about 1.5 per cent weaker than forecast. The Board judged that the krona will be somewhat weaker than expected in the short run but found no grounds at present for revising the assessment of its path in the longer run. One member considered that portfolio movements in connection with the introduction of the new pension system this autumn may lead to the krona remaining somewhat weaker than expected even in the medium term.

 

Share prices in Sweden have gone on fluctuating relatively widely and option pricing indicates expectations that price movements will continue to be large. Share prices have risen 4 per cent to date this year but the current level is about 2 per cent lower than at the time of the June Report.

 

1.4 Import prices

The price of oil has been higher than anticipated, partly due to the recent unexpectedly marked depletion of oil stocks in the United States. The September futures barrel price is currently about USD 31, which is over USD 5 above the assessment in the Inflation Report. Prices for futures somewhat further ahead are also above the forecast path. Moreover, market expectations derived from option pricing point to a continued risk of oil price increases. Three members underscored that crude oil demand has probably been underestimated. All in all, the Board judged that the oil price forecast is somewhat too low.

 

The consumption-weighted level of import prices rose 1.6 per cent from May to June, giving a 12-month change of almost 9 per cent. Although prices for oil and petroleum products rose more than expected, the overall rate was over 0.5 percentage points less than forecast in the June Report. One explanation is that price movements for food and agricultural products were weaker than expected.

 

The Board noted that, with a weaker exchange rate tendency and a higher oil price than expected, some upward adjustment of the import price forecast for this year may be called for even though the June outcome was lower than anticipated. With the unchanged exchange rate forecast for the somewhat longer run, further ahead in the forecast period import prices are predicted to fall to a greater extent than assumed earlier. A temporary weakening of the krona was judged to have little effect on consumer prices but if this tendency were to last, it could affect consumer prices after a time.

 

1.5 Demand and supply

GDP growth in Sweden was judged in the Inflation Report to be 4.3 per cent this year, 3.5 per cent in 2001 and 2.9 per cent in 2002. The comparatively high growth was assumed to mean that the unutilised resources would be brought into production successively during the forecast period but the risks of more extensive capacity restrictions were still expected to be relatively limited.

 

The Board noted that according to the preliminary national accounts for 2000 H1, economic growth in Sweden from 1999 H1 was 3.8 per cent. This is half of a percentage point below the forecast rate of annual growth and means that in order to match the June forecast (given that the preliminary H1 outcome is not revised), H2 growth will have to average 4.8 per cent. Even with somewhat larger contributions from net exports and stockbuilding, growth was lower on account of weaker domestic demand.

 

Household consumption expenditure in 2000 H1 was about 4 per cent higher than a year earlier. This historically high increase was below the forecast.

 

However, new statistics on retail turnover, new car registrations and growth of the money supply point to a persistently strong consumption trend in the Swedish economy. The favourable developments in the labour market and the continued optimism of households about their own as well as the national economy also suggest that the consumption propensity will be maintained.

 

But although private consumption can be expected to go on rising strongly, five Board members pointed to some factors whereby the annual outcome may be weaker than expected, so that some downward adjustment of the consumption forecast may be called for. Besides the weaker tendency in the first half-year, mention was made of the weaker performance of the Stockholm stock exchange in the second quarter. One member, however, saw no reason at present to adjust the forecast on the basis of preliminary national accounts data because other statistics suggest a strong development of consumption. This member underscored that the rapid increase in household borrowing is continuing and that the ratio of household debt to GDP is now at the same level as at the end of the 1980s.

 

For public consumption (including the effect of reclassifying the Church of Sweden), the national accounts show a fall of 2.6 per cent in 2000 H1 from the same period a year earlier. This is weaker than forecast and can be compared with an expected annual increase of 1.6 per cent. However, the statistics are difficult to interpret and the various sources give conflicting indications. The Board therefore considered that the outcome data should be interpreted with caution but judged that the path of public consumption continues to entail some downside risk for GDP growth this year.

 

Gross fixed capital formation in 2000 H1 was 4.4 per cent higher than a year earlier, which is also less than forecast. However, the national accounts’ investment statistics usually have to be revised substantially. The latest business tendency survey shows that the primary restriction on manufacturing output is the supply of plant and machinery and that a large proportion of firms are both expanding and planning to expand production capacity. Moreover, the tendency data suggest an appreciable improvement in construction activity, not least among firms engaged in residential construction. Against this background the Board considered that the available statistics spoke in favour of a strong investment trend in the second half-year but that, even so, the annual forecast for this year may need some downward revision.

 

One Board member found the lower H1 outcome remarkable, partly in view of the continued rapid growth of corporate sector borrowing. The ratio of corporate debt to GDP is the highest for many years. Another member considered that a conceivable explanation for this may be that firms are using borrowed funds to finance takeovers.

 

The Board noted that at 0.6 percentage points, the contribution to H1 growth from stockbuilding was higher than expected. In the Inflation Report it had been judged that the annual contribution in 2000 would be –0.2 percentage points. The Board considered that while the stockbuilding data in the preliminary national accounts are relatively uncertain, stock movements contain some upside risk for GDP growth this year.

 

The H1 growth of both exports and imports was higher than expected. The GDP contribution from net exports exceeded the forecast, probably in part as a result of the somewhat higher international growth. In the light of this, the Board considered that some upward revision of net exports this year may be called for.

 

The positive labour market development has continued in recent months and is broadly in line with the assessment in the June Inflation Report. In the first six months of this year the average increase in employment amounted to 73,000 persons, which can be compared with the forecast figure of 81,000 persons for 2000 as a whole.

 

The Board noted that total labour productivity in 2000 H1 was 1.8 per cent higher than a year earlier, which is in line with the Inflation Report’s annual assessment. In the light of this, the Board found no strong reasons for changing the productivity forecast.

 

New statistics indicate that resource utilisation in the economy is rising. In manufacturing, capacity utilisation moved up 1 percentage point in Q2 to 88 per cent. The proportion of firms reporting shortages of skilled workers and salaried technicians also went on rising in Q2. The Board noted, however, that only 12 per cent of firms cite labour supply as the primary restriction on output; the main obstacle is rather the supply of machinery and plant. But labour shortages did rise in Q2 in construction and the service industries.

 

Five Board members considered that although labour shortages have increased, in most respects the shortage figures are not alarming, being still below the levels in the late 1980s, for example. In addition, there are presumably still some labour reserves. Two members pointed out that this has probably helped to subdue wage increases. Another member mentioned that the supply of labour has risen more than expected in the past year and that this was probably a sign of greater labour market flexibility. All in all, the Board’s opinion was that in the past year resource utilisation has probably been somewhat lower than estimated.

 

In the June Inflation Report wage increases were judged to average 3.7 per cent this year and 4.3 per cent in both 2001 and 2002. The rate of 3.1 per cent in May means that the forecast annual figure implies an acceleration in the coming months to over 4 per cent. Two Board members considered that, for example, increased competition in markets for goods may have helped to make wage increases — and ultimately domestic price pressure — lower than expected. The Board’s assessment was that the wage outcome to date this year can motivate a marginal downward revision of the wage forecast for 2000. No grounds were considered to exist at present, however, for altering the forecast for the longer term.

 

All in all, the Board found that the new statistics since the Inflation Report support the picture of strongly rising activity that is in the process of bringing the unutilised resources into production. Five Board members considered, however, that this year’s GDP growth may be somewhat lower than assumed in the June Report. In the opinion of the sixth member, on the other hand, it was too early to draw such conclusions based on preliminary national accounts data because the latter are frequently revised later on. The member added that a continuation of strong growth is indicated by other statistics. Moreover, the cyclical profile may turn out to be different, partly in view of this and next year’s strong growth in the rest of the world. Another member considered that in connection with the work on the next Inflation Report there were reasons for a thorough discussion of the future cyclical profile in the light of both the international outlook and the somewhat weaker domestic figures.

 

1.6 Price effects of deregulations, trade liberalisation, political decisions and interest expenditure

The downward CPI effect of deregulations and trade liberalisation was judged in the Inflation Report to be –0.4 percentage points in 2000 and –0.1 percentage point in 2001 as well as 2002. The Board noted that new price cuts for international calls have been announced by Telia and Tele2 at the same time as the former intends to raise prices for transferring subscribers. The Board judged that the changes are accommodated in the June Report’s forecast. No new proposals to alter indirect taxes have been presented. The July contribution to CPI inflation from interest expenditure was marginally higher than forecast. This was largely because market interest rates did not move in line with the assumption of an unchanged repo rate. The Board noted, however, that the development of interest rates since the publication of the June Report does not warrant appreciable changes in the forecast for house mortgage interest expenditure.

 

1.7 Inflation expectations

According to Statistics Sweden, the one-year inflation expectations of households moved up from 1.7 per cent in June to 1.9 per cent in July. The corresponding expectations among manufacturing and services companies in June were 1.7 and 1.6 per cent, respectively. This means that since the previous survey in March 2000, the expectations of firms have moved up 0.1–0.2 percentage points. The Board noted that inflation expectations continue to be well in line with the inflation target.

 

2. The Board’s assessment of inflation prospects

In the Inflation Report’s main scenario it was judged that, with an unchanged repo rate, in the coming one to two years the 12-month rate of both CPI and underlying (UND1X) inflation would be below the targeted rate of 2.0 per cent. The risk spectrum was judged to be balanced one year ahead, while after two years there was considered to be some upside risk. Including these risks, UND1X inflation at the end of the forecast period was judged to be in line with the target.

 

2.1 The monetary policy group’s appraisal

The Board’s discussion of inflation prospects was preceded by an account of a corresponding discussion in the Bank's monetary policy group.(1)

 

In the opinion of the policy group, the subsequent information had not decisively altered the June inflation forecast. Although the economy is now further along the business cycle, there are still grounds for believing that inflation will be below the 2 per cent target for the greater part of the forecast period. New statistics indicating domestic growth that is somewhat lower than expected, as well as lower registered price pressure, speak in favour of this. The more subdued share price tendency in the past six months has helped to reduce the risk of a very rapid wealth-driven increase in consumption.

 

Three of the issues discussed by the policy group were taken up at the Board meeting. One of them was the path of the exchange rate and the causes of the recent weakening. In the opinion of the group, this weakening did not represent a loss of confidence in Sweden’s currency and was rather a consequence of the euro’s path relative to the U.S. dollar. The analysis of the krona’s future trend should be undertaken in the light of the persistently strong dollar as well as the increased short-term interest rate differential with the euro area.

 

Another issue concerned the national accounts and the implications which any revisions of the preliminary data may have for the forecast and the formulation of monetary policy. The group had noted that on some past occasions the revisions had been relatively extensive. As the employment statistics are relatively stable, a conceivable upward revision of H1 GDP growth would be likely to result in a higher productivity figure. However, the conclusions that any such revisions would warrant as regards the future path of inflation are not self-evident.

 

The policy group had also discussed the domestic price tendency. Although growth has probably exceeded expectations since the spring of 1999, domestic price pressure has been weaker than forecast and even fallen. The latter is in contrast, moreover, to the situation in the euro area. In terms of the assessments that have been made, this appears to be mainly a result of decreased profit margins, which could in turn be an effect of increased competition, and unexpectedly marked effects from deregulations. The appropriate conclusions for the assessment of future inflation are not self-evident, however. It could be that resource utilisation has been lower than expected but it could also have to do with permanent changes in economic behaviour that might find expression in, for example, an increased rate of potential growth.

 

2.2 The Board’s discussion

The Board noted to begin with that, just as at the time of the June Report, under present circumstances in the further discussion of inflation prospects and the formation of monetary policy it was reasonable to disregard the estimated effects of indirect taxes, subsidies and interest expenditure because they are judged to have no permanent effect on either inflation or inflation expectations. One member reminded the Board that the effects of introducing a maximum day nursery charge during 2002 do not influence the cyclically-dependent price pressure in the economy.

 

Five Board members considered that the new statistics during the summer broadly confirm the path of inflation one to two years ahead than had been forecast in the June Report. In the short run the higher price of crude oil means that UND1X inflation is expected to be somewhat higher than anticipated earlier. But it is still foreseen that inflation will be below the target for the greater part of the forecast period, partly in view of weaker domestic growth and lower domestic price pressure than allowed for earlier. This applies even though the Swedish economy is now in a later phase of the business cycle, which by itself should be an argument for adjusting the inflation forecast upwards. It is only towards the end of the forecast period that inflation can be expected to move up to the targeted rate. One of these five members considered that there are risks of both higher inflation in connection with higher oil prices and lower inflation as a consequence of lower resource utilisation.

 

All six Board members underscored, however, that the picture of a strong economic upswing still holds. Inflation is expected to accelerate as resource utilisation becomes higher. The Board stated in this context that any upward revision of GDP growth in 2000 H1 would probably imply a higher productivity trend in that period.

 

The sixth Board member judged that towards the end of the forecast period UND1X inflation will be a couple of tenths of a percentage point higher than assessed in the June Report’s main scenario. Strong economic growth in the rest of the world and persistently high oil prices point to successively rising inflationary pressure elsewhere as well as in Sweden. The member saw no reason in the present situation for a downward revision of this year’s domestic growth on the basis of the available preliminary statistics. The member also considered that the cyclical profile may take on a different appearance in connection with, for example, this and next year’s stronger growth in the rest of the world. If demand grows at the current rate, inflation will accelerate.

 

One of the members behind the majority opinion considered that during the work on the October inflation forecast there was reason to return to two important issues. For one thing, the cyclical profile should be discussed in the light of the recent statistics. What are the likely forces behind growth in the coming years? May lower private consumption this year, for example, mean that consumption rises more rather than less in 2001? For another, the discussion about the forecast should focus to a high degree on why domestic inflation has been so low even though growth has been high both in Sweden and in the rest of the world. The member found it reasonable to go on testing the hypothesis that something essential has happened in the Swedish economy which has contributed to this. Another member considered that the Riksbank needs more knowledge about the functioning of the supply side of the economy in order to arrive at a better understanding of the inflation process.

 

In this context a member underscored the importance of the Board continuously returning to and discussing earlier positions. Such a discussion can contribute to a gradual improvement of the assessments and a better comprehension of the Riksbank’s assessments and actions. The member’s own appraisal of international growth had undergone a change. In this context the member addressed the member who in the past year had believed that the output gap had virtually closed and that domestic inflationary pressure would rapidly increase and who had therefore advocated a repo rate increase on a number of occasions: What conclusions did that member draw from the new figures?

 

The member in question welcomed this type of discussion. During the spring the member’s appraisal of resource utilisation had changed and for some time now the member judged, like the other members, that resource utilisation had probably been overestimated. This was so even though, as the member had believed, the international trend has been strong. The member considers that the degree of resource utilisation in the economy is highly important for inflation and believes that to a large extent the low domestic inflation has had to do with lower resource utilisation. The member’s view of resource utilisation’s significance for inflation also affects the appraisal of price tendencies.

 

The member believes in lower inflationary pressure this year but counts on price pressure growing somewhat faster than other members foresee as resources are brought into production. The member’s forecast of inflation this year is currently somewhat lower than the majority’s but the rate foreseen at the end of the forecast period is somewhat higher. The member motivated the deviant appraisal in terms of assessments that are somewhat less optimistic than the majority’s as regards the workings of the labour market and competition in a number of domestic markets.

 

Another Board member found it probable that the Riksbank has underestimated the size of the output gap, which may partly explain the weak development of domestic price pressure in earlier years. The member underscored that it is difficult to arrive at a definite opinion about this. Another member agreed that the output gap has probably been underestimated but pointed to the possibility of this being due to an increased rate of potential growth, which may also tend to curb inflation in the future.

 

3. The Board’s assessment of the monetary policy situation

3.1 The monetary policy group’s appraisal

In the opinion of the policy group, the recent statistics spoke in favour of not adjusting the repo rate at today’s meeting. Although the Swedish economy had moved ahead in the business cycle, it was considered that grounds were lacking for an upward revision of assessed inflation one to two years ahead. Besides the fact that inflation is expected to be below the targeted rate during the greater part of the forecast period, the more subdued development of share prices is a marginal reason for leaving the interest rate unchanged. The group pointed out, however, that the strong growth entails rising resource utilisation, which means that the repo rate may need to be increased in the future if the economic picture holds.

 

3.2 The Board’s discussion

Five Board members shared the policy group’s view that the repo rate would be left unchanged at today’s meeting. They also pointed out that they likewise agreed with the group’s opinion about a future need to raise the repo rate.

 

A sixth Board member considered there were grounds for raising the interest rate now. The member judged that towards the end of the forecast period inflation would be a couple of tenths of a percentage point higher than indicated in the June Report. The member also held that in the present cyclical situation monetary policy ought not to be expansionary, particularly as a future tightening of fiscal policy cannot be expected. In addition, the member referred to earlier statements about the value of making timely monetary policy adjustments so as to avoid unnecessary fluctuations in inflation and economic growth.

 

In this context the member reflected that when U.S. monetary policy was tightened during 1994, the Federal Reserve had initiated interest hikes at a very early stage, when unutilised resources were considered to be fairly large. When the output gap closed some years later, the instrumental rate was higher than the current level of the Swedish instrumental rate. The member questioned this disparity, given that the Swedish economy displays greater rigidities than the U.S. economy.

 

Another member objected to this comparison because it was made in nominal instead of real terms. A rate of inflation today in the Swedish economy that is lower than the rate at that time in the United States means that the Federal Reserve started from a real instrumental rate of just over 0 per cent. By 1995 the real instrumental rate was only somewhat higher than today’s real repo rate in Sweden. The member who made the comparison agreed that it should be made in real terms but considered that the difference between the real instrumental rates is accentuated in that the strong dollar had tended to curb demand.

 

Yet another member underscored the importance of referring these arguments back to the existing intellectual framework and coupling them to inflation prospects. If monetary policy is expansionary in terms of reasoning about neutral interest rates, it should lead to rising inflation. Those who are concerned that policy is too expansionary should consider whether our inflation forecast is on the low side. It is also conceivable that inflation is being held down by, for example, deregulations and increased competition, so that historical relationships cannot be simply applied to the present situation. In such a situation should not the Riksbank use this opportunity to keep interest rates down?

 

A member called for a resumption of the Board’s earlier discussion about the time horizon in monetary policy’s intellectual framework. A number of members considered that the minutes of the June meeting appear to have generated some confusion, so that there are grounds for being clearer.

 

In recent years the Riksbank has used a rule of action in monetary policy to the effect that the interest rate is normally to be increased if inflation, measured as the annual change in the CPI, is expected to exceed the 2 per cent target one to two years ahead and vice versa. The Board members were agreed on the value of having a rule of action because it had firmed the internal work on inflation assessments, contributed to a more focused analysis and facilitated external communication. The Board also issued a reminder that the time horizon of one to two years had been chosen because it corresponds to the period when interest rate adjustments are assumed to have their greatest effect. But as interest rate changes also affect inflation both before and after this period, there are reasons for paying some consideration to forecast inflation in the coming year as well as in the period more than two years ahead. Moreover, the Riksbank has clarified that under special circumstances — for instance as a result of transitory effects or if a sizeable shock would make a rapid return to the inflation target economically harmful — there may be reasons for departing from the rule of action. The Board emphasised, however, that this will be motivated.

 

§2. The monetary policy decision

The Chairman summarised the monetary policy discussion under §1 and noted that there were proposals for an unchanged repo rate and a repo rate increase, respectively.

 

A vote was taken and the Executive Board decided that the repo rate is to be held unchanged at 3.75 per cent and that this decision shall apply from Wednesday, August 23rd, and that the decision be announced at 9.30 a.m. on 17th August, with the motivation and wording contained in Press Release no. 47 2000 (Annex A to the minutes).

 

Deputy Governor Eva Srejber entered a reservation against the decision and stated that the repo rate should be raised 0.5 percentage points. One reason for this is her assessment that towards the end of the forecast period inflation would otherwise probably be somewhat higher than is desirable. Another reason, according to her, is that monetary policy must be adapted to developments in the economy as a whole, in both the real and the financial sectors. In that way monetary policy can help prevent marked fluctuations in the development of prices and economic growth beyond the normal forecast horizon.

 

This paragraph was immediately confirmed.

 

___________________________

1) The group is made up of Riksbank staff and is headed by one of the deputy governors. The main features of the group’s discussion are presented at the Board meeting. The opinions expressed in the minutes are not necessarily shared by all the members of the group, including the chairperson.