Minutes of the monetary policy meeting held on 16 December
At its monetary policy meeting on 16 December, the Executive Board of the Riksbank decided to cut the repo rate by 0.25 percentage points to 0.75 per cent and to lower the repo-rate path.
It was noted at the meeting that the Executive Board agrees on the picture of economic prospects and the inflation outlook described in the Monetary Policy Update. Economic developments in Sweden and abroad have been largely in line with the Riksbank's forecasts for some time now. However, inflation has been lower than expected. Over the coming year, the Swedish economy is expected to show a more tangible improvement. GDP is expected to accelerate and during the latter part of 2014 unemployment will fall faster. Despite the economic recovery, inflationary pressures are now expected to be much lower over the coming year than was forecast in October. The reasons for the lower inflationary pressures include the halt in the increase in service prices recently and the broad downturn in these prices. A more expansionary monetary policy and rising resource utilisation will mean that CPIF inflation increases to 2 per cent in 2015. Indebtedness among Swedish households will remain high, which makes the economy vulnerable to shocks.
Given the low inflationary pressures, all of the members agreed that it is appropriate to cut the repo rate by 0.25 percentage points to 0.75 per cent and to adjust the repo-rate path downwards. The repo rate path suggests a slightly greater likelihood of a further cut, rather than a raise, in February next year, although the most likely scenario is that the repo rate will remain at the same level of 0.75 per cent until the start of 2015, before slowly starting to rise again. In this way, monetary policy will contribute to CPIF inflation rising towards 2 per cent. Towards the end of 2016, the repo rate is expected to amount to 2.6 per cent.
Among other matters, the risks linked to household indebtedness were discussed at the meeting. The need to implement macroprudential policy measures was emphasised, as was the importance of several policy areas cooperating to reduce these risks. Moreover, there was discussion of the links between inflation in Sweden and inflation abroad, possible reasons for the low rate of increase of service prices, how monetary policy in other countries affects the conditions for monetary policy in Sweden and how inflation expectations develop in Sweden.
Read the full minutes of the monetary policy meeting.
