Minutes of the monetary policy meeting held on 2 July 2014

It was noted at the meeting that the Executive Board agreed on the picture of economic prospects and the inflation outlook described in the draft Monetary Policy Report.

A gradual improvement in international economic activity in general is expected over the coming years. At the same time, global inflationary pressures are still low and the forecast for international policy rates has been revised downwards. Economic activity is strengthening in Sweden and household indebtedness as a share of disposable income is expected to increase more than was previously forecast. However, inflation has been lower than expected and the assessment is that inflationary pressures are clearly lower. With the adopted monetary policy, CPIF inflation is expected to rise towards the end of the year and to reach 2 per cent in early 2016.

The Executive Board agreed that an even more expansionary monetary policy is now needed given that inflation has been lower than expected, inflationary pressures are now assessed to be lower and the forecast for international policy rates has been revised downwards.

A lower repo rate and a lower repo-rate path than assessed in April are needed so that inflation will rise towards the target quickly enough to ensure that inflation expectations remain anchored at 2 per cent. However, the low level of interest rates increases the risk that the economy will develop in a way that is not sustainable in the long run. The Executive Board therefore agreed that it is now even more important for other policy areas to take measures to manage the risks associated with household indebtedness and the development of the housing market.

However, different members of the Executive Board had different assessments of how much the repo rate needed to be cut at this monetary policy meeting. A majority considered it appropriate to cut the repo rate by 0.5 percentage points to 0.25 per cent. They also considered it appropriate to postpone a first increase to the end of 2015. Their assessment was that the repo rate will then gradually begin to be raised to reach just over 2 per cent during the latter part of 2017. The purpose of the large cut in the repo rate and the revision of the repo-rate path is to send a clear signal that rising inflation is now the most important task for monetary policy.

Two members advocated cutting the repo rate by 0.25 percentage points, to 0.5 per cent. They also considered it appropriate to postpone a first increase, but to 2016, and that the repo rate should be raised slowly thereafter. These members shared the view that it is important that inflation approaches the target in the near future, but felt that this proposal entailed a better balance for attaining the inflation target at the same time as giving some consideration to the high level of household indebtedness.

Monetary policy in a small open economy was discussed at the meeting as well as the position of Sweden in an international context given that the recovery in different parts of the world is uneven with regard to growth, and given that monetary policy also differs. The Executive Board also discussed the need for measures to be taken to manage the risks associated with household indebtedness.

Read the full minutes of the monetary policy meeting.