Minutes of the monetary policy meeting held on 17 December 2012

It was noted at the meeting on 17 December that new information received since the monetary policy meeting in October indicates that the Swedish economy is slowing down more sharply than was assessed then. GDP is therefore expected to increase at a slower pace and unemployment to rise slightly more than was assumed in October. At the same time, inflationary pressures are expected to be lower.

Given the weaker economic activity and lower inflationary pressures, the Executive Board agreed that it is appropriate to cut the repo rate and to adjust the repo-rate path downwards. However, as at earlier meetings, there were differences of opinion with regard to how expansionary monetary policy should be. Five Board members considered it appropriate to cut the repo rate by 0.25 percentage points, to 1.0 per cent. One member instead wanted to cut the repo rate by 0.5 percentage points.

All Board members considered it appropriate to adjust the repo-rate path downwards, but there were differing opinions as to how much it should be lowered. A majority of four members assessed that cutting the repo rate to 1.0 per cent and allowing it to remain at around this low level over the coming year would lead to inflation attaining the target of 2 per cent after just over one year and to resource utilisation normalising.

Two members considered that there was scope for an even lower repo-rate path and they advocated two different repo-rate paths that were assessed as more quickly leading to inflation reaching the target of 2 per cent, at the same time as unemployment would come closer to a long-run sustainable rate.

Another topic discussed at the meeting was the high level of household debt and what risks this could create further ahead; including the role that monetary policy could play. During the meeting, a number of different nuances arose regarding developments abroad. There was continued discussion of several issues regarding the monetary policy apparatus, including the forecasts for inflation and international policy rates. In this context, there was also discussion of how the severe economic fluctuations in recent years have affected the development of the Swedish economy and made it more difficult to assess.