Repo rate left unchanged at 2.75 per cent

CONTACT Tomas Lundberg, Press Officer, tel. +46-8-787 02 15

 

The whole report as pdf

 

At its meeting on Thursday, 4 December, the Executive Board of the Riksbank decided to leave the repo rate unchanged at 2.75 per cent. This decision, which will apply from Wednesday, 10 December, is based on the picture of inflation prospects presented today in the Riksbank's Inflation Report.

The Riksbank's assessment of international economic activity has not changed significantly in recent months. However, the outlook for the US economy has become somewhat more optimistic. Growth in the euro area this year has been slower than in the rest of the world economy, but there are now some signs of an economic upturn there, too. In all, the Riksbank forecasts GDP growth to rise gently in the OECD area, reaching 2.0 per cent this year, 2.9 per cent in 2004 and 2.7 per cent in 2005.

The forecast in the October Inflation Report was for a slow recovery in economic activity in Sweden in the years ahead. This forecast remains essentially unchanged. GDP growth is still expected to be 1.5 per cent in 2003, 2.4 per cent in 2004 and 2.5 per cent in 2005. There has been a slight upward revision of the forecasts for exports and imports this year. The forecast for public sector consumption has been revised down somewhat for the coming two years, due to strained local government finances.

Since the October Inflation Report, inflation has fallen back as forecast by the Riksbank. However, energy prices have again been unexpectedly high, while other price increases have been lower than anticipated. This applies to prices of both imported and domestic goods and services. One possible explanation for why inflation excluding energy prices has been weaker than forecast is that productivity growth has been unexpectedly robust.

There is still a risk that international economic activity will be weaker and lead to lower inflation than in the main scenario. However, recent developments in the United States and Asia suggest that the opposite situation is also possible - that the recovery will be faster than expected and that inflation will therefore be higher. The domestic risks of higher inflation, which stem from continued high electricity prices and excessive wage increases in the coming wage bargaining round, still remain. A new element in the balance of risks is that there are now also signs that domestic inflationary pressure could be lower than expected. One reason for this is that productivity growth has been unexpectedly strong. Inflation excluding energy prices has also been lower than anticipated during the year. In addition, the weak labour market could lead to lower domestic demand than in the main scenario. In all, the forecast is somewhat less uncertain than in October while the risks of higher inflation are balanced by the risks of lower inflation.

Inflation is expected to be affected strongly by fluctuations in energy prices during the forecast period, but these are largely judged to be temporary. Thus, there is also reason on this occasion to exclude energy prices from the assessment of the more underlying, cyclical inflation rate. UND1X inflation excluding energy, which is currently considered to be the best measure of cyclical inflation, is expected to be in line with the Riksbank's target both one and two years ahead. In light of this, the Executive Board has decided to leave the repo rate unchanged.

The future stance of monetary policy will depend as usual on the new information received and on how this affects the overall assessment of inflation prospects in the years ahead.

The minutes of the Executive Board's monetary policy discussion from yesterday's meeting will be published on 18 December 2003.

A press conference with Deputy Governor Irma Rosenberg, Anders Vredin and Kerstin Hallsten, the Head and Deputy Head of the Monetary Policy Department, will be held at 11 a.m. at the Riksbank, Brunkebergstorg 11. Press cards must be shown. The press conference will be broadcast live on the Riksbank's website, http://www.riksbank.se/.

The Inflation Report can be downloaded from the Riksbank's website, under the heading Publications/Inflation Report, or ordered from the Riksbank by e-mail, forradet@riksbank.se, fax +46-8-787 0526 or tel. +46-8-787 0100.