Minutes of the monetary policy meeting held on 12 February

It was noted at the meeting that growth in the Swedish economy is weak and that inflationary pressures are low. New information supports the picture presented in the December Monetary Policy Update that GDP fell in the fourth quarter of last year, but indicates that the situation has stabilised since then and that the economy will gradually strengthen during 2013. Some positive signs have emerged; companies in Sweden and abroad have become a little more optimistic about the future, for example. As the labour market lags behind the business cycle, the assessment is nevertheless that employment will level out and that unemployment will increase somewhat in the year ahead. However, the concern that there would be a greater decline in economic activity that several members of the Executive Board expressed in December has now lessened.

Given that inflationary pressures are low and that resource utilisation is lower than normal, the Executive Board agreed that the repo rate should continue to be low. However, as at previous meetings, there were differences with regard to how expansionary monetary policy should be.

The assessment of a majority of four of the Board members was that letting the repo remain at 1 per cent during the year ahead would enable inflation to reach the target of 2 per cent after just over a year and resource utilisation to normalise. They did not believe that a slightly lower repo rate would alter this assessment in any decisive way. They also regarded the chosen repo-rate path as appropriate considering that the risks that the high level of household indebtedness poses to economic development in the long term still remain.

Two members considered that there was scope for a lower repo-rate path and they advocated cutting the repo rate to 0.75 and 0.5 per cent respectively and lower repo-rate paths so that CPIF inflation would reach the target of 2 per cent more quickly and unemployment would come closer to a long-run sustainable rate. Their assessment was that that there was no reason to take any extra account of household indebtedness at present.

In addition, the meeting discussed to what degree monetary policy can influence unemployment and the debt ratio, to what extent monetary policy can be used to exert detailed control over economic development and different views of developments abroad. The meeting also discussed the inflation forecast, the reasons why inflation has been lower than was expected two years ago and what the consequences of a lower repo rate since 2010 would have been. There was also a discussion of the larger differences than normal in the development of prices for goods and services and what this means for economic development and inflation in the future.