Lars Heikensten: Repo rate increase reconfirmed by new information

External inflationary pressure has become somewhat stronger since the beginning of October, when the Riksbank published the latest Inflation Report. The picture of stronger growth in Sweden’s main export and import markets has been further reinforced, accompanied by larger price increases than had been expected for oil and other commodities. The new information about activity in Sweden and domestic price pressure is less clear-cut. This year’s trend could conceivably be somewhat weaker than estimated earlier but it is difficult to tell, partly because the statistical material seems to be so uncertain. Still, at present it is hard to find any basic reasons why activity might be checked in the coming years.’

 

These remarks are from the talk on ‘Sweden’s economy’ that First Deputy Governor Lars Heikensten will be giving this evening at a meeting arranged by the Swedish Shareholders Association in Folkets Hus, Stockholm. The talk will begin with economic developments in Sweden in the somewhat longer run as well as in relation to prospects in the European Community. This will be followed by a discussion of current tendencies in Sweden, starting mainly from the October Inflation Report and the monetary policy discussion that the Riksbank’s Executive Board held in November.

 

‘In view of the stronger external price pressure, at the monetary policy meeting on 11 November the Executive Board judged that inflation in Sweden would be marginally above the forecast path in the October Report. The repo rate was therefore raised 0.35 percentage points. With an increase that somewhat exceeded expectations the Riksbank wanted to ‘clear the air’ before the turn of the year.

 

‘The new information since then strengthens my conviction that the interest rate increase was needed. If the economic upswing continues as expected, further interest rate increases will be called for in order to adjust growth to the rate that the Swedish economy can maintain with a continuation of low inflation. There are reasons for returning to this after the turn of the year.’