Minutes of the monetary policy meeting held on 5 September 2012

The Executive Board has long been in agreement that inflationary pressures are low and that the repo rate needs to be low to boost economic activity and for inflation to attain the target of 2 per cent. This is why the repo rate and the repo-rate path have been lowered over the last 12 months. However, there have been differences in the view of how expansionary monetary policy should be.

At the meeting on 5 September the assessment was that cost pressures will now be lower and lead to lower inflation than in the assessment in July. The Executive Board was unanimous that the repo rate thus needs to be cut further to counteract the low inflation and support economic activity. However, this time too there are differences in 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 1.25 per cent. One member wanted to cut the repo rate by 0.5 percentage points. All of the members considered it appropriate to adjust the repo-rate path downward. A majority, four of the members, considered a small downward adjustment to be appropriate. They considered that CPIF inflation would thus reach 2 per cent within 2 years and resource utilisation would normalise. However, two members considered that there was scope for an even lower repo-rate path and assessed that this would lead to an inflation rate closer to 2 per cent and unemployment closer to a long-run sustainable level.

One issue facing the members of the Executive Board was, as in July, how to balance the weak and above all uncertain development of the euro area against the relatively strong development of the Swedish economy. All of the members believed that the situation in the euro area is still uncertain and that the downturn there will be prolonged.

The members agreed that the growth of Swedish GDP is now slowing down following strong growth so far this year and that the strong outcome is not expected to be inflationary. There was also agreement that actual unemployment is currently higher than the long-run sustainable unemployment rate, although there were different assessments of what this rate is. There were also different assessments of what monetary policy can achieve at present with regard to developments in unemployment.

Several members touched on recent developments of the krona and noted that the appreciation that was forecast earlier had come sooner than expected. Some members also discussed households' high debt ratios and the vulnerability this can create for the economy, something that these members thought would continue to require considerable attention

You can read the full minutes of the monetary policy meeting in the attached PDF file.