Minutes of the monetary policy meeting held on 23 October 2013

It was noted at the meeting that for some time now economic developments in both Sweden and abroad have been largely in line with the Riksbank's forecasts. GDP growth in Sweden was weaker than expected in the first half of the year, but is expected to pick up more speed next year as a result of improved economic activity abroad and stronger domestic demand. The labour market has continued to improve and a more tangible upturn in employment is expected next year.

Inflation has been low over a long period of time, but when economic activity strengthens, costs and prices are expected to rise faster. This means that CPIF inflation will increase to 2 per cent during 2015. Swedish households continue to be highly indebted, both in an historical and an international perspective, which makes the economy vulnerable to shocks.

The prospects for an upturn in economic activity appear to be good, but there are also causes for concern, for example the budget problems in the United Sates, the effect of a normalisation of US monetary policy on the rest of the world and the management of the problems in the banking sector in the euro area.

Given the low level of inflation and in order to support the upturn, the Executive Board agreed that monetary policy needs to continue to be expansionary. A majority of four members assessed that it was appropriate to hold the repo rate unchanged at 1 per cent until the end of 2014. The economy is then expected to have shown a more tangible improvement and inflation to have risen, so that it will be possible to begin raising the repo rate towards a more normal level. Although a repo-rate cut now could bring inflation back to 2 per cent somewhat more quickly, it could also increase the macroeconomic risks associated with the high level of household indebtedness. A majority considered that an unchanged repo rate over the next 12 months was an appropriate trade-off between the need for short-term stimulus to get inflation to rise towards the target and consideration of the risks associated with household indebtedness.

Two members advocated cutting the repo rate by 0.25 percentage points to 0.75 per cent to bring inflation to the target more quickly. These members assessed that such a cut would have little effect on the risks relating to household indebtedness. They then advocated slightly different rates of increase.

All of the members of the Executive Board agreed that once measures have been taken in the field of macroprudential policy then the preconditions for monetary policy will be affected. However, there were slightly different views about to what extent macroprudential policy measures are already in place and how extensive they will ultimately be.

The meeting also discussed the differentials between the Swedish repo rate and policy rates abroad, the real interest rate and the type of data needed for a sound analysis of indebtedness. A discussion of how the repo-rate path should be adapted to new information arose when two members argued that it may not be necessary to change the repo-rate path even if the development of the economy proved to be better than in the main scenario.

Read the full minutes of the monetary policy meeting.