Minutes of the monetary policy meeting held on 4 September

It was noted at the meeting that economic developments both in Sweden and abroad have been largely in line with the forecast made by the Riksbank in July. It is good for the Swedish economy that there are now signs that an improvement has begun in the euro area, at the same time as the recovery in the United States is continuing. At the same time, the Executive Board noted that developments abroad are uneven. GDP growth in Sweden was low in the second quarter of this year, but indicators suggest that an improvement is in sight. Confidence indicators have risen and the situation on the labour market has become slightly better than expected. Next year, economic activity is expected to accelerate more and then the labour market will also show a more marked improvement. 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. Interest rate increases mean that CPI inflation will be higher than CPIF inflation from the end of next year and will reach 2.8 per cent at the end of the forecast period. Swedish households are highly indebted, both in an historical and an international perspective, which makes the economy vulnerable to shocks. It is therefore good that the Government has proposed a framework for macroprudential policy.

Given the low inflation, 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. Economic activity is expected to accelerate more clearly then and inflation to have risen for some time. The majority also considered an unchanged repo-rate path in relation to the July Monetary Policy Report to be reasonable, as new information received since then had been largely as expected. They noted that although a lower repo-rate path could lead to inflation attaining the target slightly sooner, it could also increase indebtedness and thus the risks to economic development in the longer run. The majority considered that the current repo-rate path will stimulate economic developments and contribute to inflation rising towards 2 per cent, at the same time as taking into account the risks linked to high household indebtedness.

Two members considered that there was scope to cut the repo rate to 0.75 per cent and to keep it at this level until the end of the second quarter of 2014. After that the two members advocated slightly different rates of increase. They assessed that this monetary policy would bring inflation back on target sooner, while resource utilisation would be more balanced.

Another topic discussed was the Government's proposal on how macroprudential policy should be conducted and how this may affect monetary policy. The Executive Board noted that the Riksbank will need to take account of macroprudential policy in the formulation of monetary policy but that it will need to return to this once concrete measures have been more precisely defined.