Repo rate unchanged at 2.90 per cent

Meeting on Thursday, August 12, the Executive Board of the Riksbank decided to keep the repo rate unchanged at 2.90 per cent. The background to the decision is the latest Inflation Report, published on June 3, and the Riksbank's current assessment of inflation.

 

In the Inflation Report it was judged that, excluding transitory effects from changes in indirect taxes, subsidies and interest rates, inflation in one to two years time would be marginally below the Riksbank's target.

 

Compared to the assessment in the Inflation Report, there are grounds for being more optimistic about global growth prospects. Still, international price pressure remains low. Recently there has admittedly been a marked increase in oil prices, but other import prices have been weak and in line with the Riksbank's assessment.

 

In the Inflation Report it was judged that the economic growth rate in Sweden would be 2.5 per cent in 1999 and 3 per cent in both 2000 and 2001. Growth to date this year has been higher than expected, however, and employment is developing strongly. Consequently, annual growth in 1999 is now judged to be more rapid, around 3,5 per cent. There are also grounds for an upward revision of the growth assessments for 2000 and 2001, even though the prospects for these two years are more uncertain. The recent sharp increase in market interest rates, in Sweden as well as in the rest of the world, may have a dampening effect if it were to persist. According to survey data, inflation one year ahead is expected to be below 2 per cent and expectations for the longer run are in line with the Riksbank's target.

 

Stronger economic growth in Sweden and an increased utilisation of productive resources point to growing pressure on prices. This in turn suggests that monetary policy may need to be conducted in a less expansionary direction in the future. However, the Swedish economy is not yet in such a situation. The link between growth and inflation is uncertain and earlier relationships may need to be reassessed in the light of new information. It can be noted, for instance, that price developments to date have been in line with the Riksbank's projection even though growth has been higher than expected.

 

The Riksbank will publish a new Inflation Report on 6 October. It will contain a comprehensive assessment of inflation prospects and the ensuing conclusions for the formation of monetary policy.

 

The minutes of the monetary policy discussion at yesterday's meeting of the Executive Board will be published on 21 September