Repo rate unchanged at 3.75 per cent
At the meeting on Wednesday, 16 August, the Executive Board of the Riksbank decided to keep the repo rate unchanged at 3.75 per cent, with effect from Wednesday, 23 August. The decision is based on inflation prospects as assessed in the latest Inflation Report together with the analysis of economic developments since then.
In the June Report’s main scenario, the rate of inflation, given an unchanged repo rate and excluding transitory effects from indirect taxes, subsidies and house mortgage interest expenditure (UND1X), was judged to be below 2 per cent both one and two years ahead. When various alternative paths were taken into account — above all the risk of stronger domestic demand — it was foreseen, however, that the rate at the end of the two-year period would be in line with the inflation target.
The assessment in the Inflation Report foresaw strong economic activity in Sweden, with GDP growth forecast to be 4.3 per cent this year, 3.5 per cent in 2001 and 2.9 per cent in 2002. The development of the Swedish economy during the summer largely confirms this picture, even though the latest national accounts do suggest that growth this year may be somewhat lower than expected.
In July the 12-month rate of both CPI and UND1X inflation was 1.2 per cent, which means that CPI inflation was the same as in June, while UND1X inflation decreased 0.1 percentage point. The outcome is in line with the June Report’s main scenario. A large proportion of the registered inflation is due to price increases for domestic heating oil and petrol. In the short run the contribution to inflation from these components is judged to be larger than forecast in the June Report. Domestic price pressure as measured by UNDINHX, for example, remains low. Unit labour costs are also rising comparatively slowly, due to good productivity growth as well as wage increases that have been somewhat lower than expected. Expectations of inflation two years ahead are in line with the Riksbank’s target.
In recent years domestic price pressure has been lower than expected. But as resource utilisation moves up, it is foreseen that inflation will rise.
All in all, even if the time perspective is shifted into the future, there are no grounds for appreciably altering the assessment of inflation one to two years ahead.
The assessment speaks in favour of keeping the repo rate unchanged for now. At the same time, the picture of a strong upswing in the Swedish economy still holds. That suggests that the repo rate may need to be raised in the future.
The next monetary policy meeting is scheduled for 9 October and the next Inflation Report will be published on 10 October. The Report will contain a comprehensive assessment of the Riksbank’s appraisal of the path of inflation.
The minutes of the Executive Board’s monetary policy discussion at yesterday’s meeting will be published on 1 September.
