Cuts the repo rate by 0.25 percantage points

The Governor of the Riksbank, having confirmed monetary policy guidelines with the Governing Board, has decided to cut the repo rate by 0.25 percentage points to 4.10 per cent. The decision will be implemented in conjunction with the repo auction on Tuesday June 9th, effective June 10th 1998.

As mentioned in the summary in the second Inflation Report of the year, published today by the Riksbank, ”Monetary conditions can, at least for a time, be moved in a somewhat more stimulatory direction without risking the fulfilment of the inflation target”.

Since the Inflation Report published in March, inflation in Sweden has been weaker than both the Riksbank and many other observers had foreseen. Inflation in the rest of the world has also been unexpectedly low. Transitory effects lie behind the tendency in Sweden but the underlying rate of inflation has also fallen. Meanwhile, the real economy seems to be developing much as expected.

Inflation in the main scenario is now below the 2 per cent target in the coming one to two years, the period most relevant for monetary policy.

Inflationary pressure from the rest of the world is judged to be subdued in the future despite the burgeoning economic recovery in many countries. Other factors -- low primary products and oil prices, increased international competition and the assumption that the Swedish krona will strengthen somewhat – add favourably to the analysis.

In the main scenario, an upswing in the economy is expected along with successively higher levels of private consumption. Productivity growth is also likely to be stronger than the Riksbank envisaged earlier. This implies that surplus capacity in the economy will remain over the next two years. The outcome of the wage negotiations may afford grounds for a somewhat brighter picture of the wage costs in the years ahead. In addition, inflation expectations have fallen further since the previous report.

Today’s Inflation Report contains a note of uncertainty, indicating that the inflation rate may turn out lower than in the main scenario. This could be the result of a downturn in the global economy. (To be continued.)

A press conference with Governor Urban Bäckström, Deputy Governor Lars Heikensten, Claes Berg, Head of Economics Department, Hans Lindberg, Deputy Head of Economics Department and Hans Lindblad, Head of Division will be held at the Riksbank at 10.00 am. Admission by press card at No. 7 Malmskillnadsgatan.

Copies of the report can be ordered on the Internet (www.riksbank.se), by e-mail (info@riksbank.se), fax (Int. +46 8 787 0526), telephone (Int. +46 8 787 0100) or collected from the Riksbank entrances at 7 Malmskillnadsgatan and 11 Brunkebergstorg 11. The report is also available in both HTML and PDF formats on the Internet (www.riksbank.se). The latter format can be retrieved electronically.