Repo rate left unchanged at 2.75 per cent
The whole report as a pdf
At its meeting on Wednesday, 15 October, 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, 22 October, is based on the picture of future inflation presented today in the Riksbank's Inflation Report.
It was observed in the June Inflation Report that the forecast for world economic growth had been gradually revised down over a long period. The sluggish growth led to a shift towards more expansionary economic policy in many countries. During the summer, the outlook for economic activity in the United States has gradually become more optimistic. In the euro area, however, there are still no clear indications of a rise in activity, and expectations have been revised down slightly further since the August monetary policy meeting. On the whole, our view of the world economy is the same now as then and a slow recovery is expected in the time ahead.
The outlook for the Swedish economy became marginally brighter over the summer. Contributing factors include the repo rate cuts totalling 0.75 percentage points in June and July, as well as the fact that growth during the first half of this year has been slightly more robust than expected. However, the outlook is largely the same as in August. As in previous forecasts, stable growth in incomes, wealth and employment is expected to lead to smooth growth in household consumption. Over the coming years, GDP growth is also expected to increase as a result of an investment upturn. The Riksbank now forecasts GDP growth to be 1.5 per cent this year, 2.4 per cent in 2004 and 2.5 per cent in 2005.
Inflation has fallen back, but less than expected. This is partly because energy prices have not declined as forecast. Over the coming months, energy prices are expected to remain at a high level. As a result, energy prices are not anticipated to subdue inflation as much over the coming year as was forecast during the summer. Instead, some of the restraining effect will be postponed. The forecasts for UND1X and CPI inflation are nevertheless largely unchanged since June, as cost pressures are otherwise anticipated to be slightly higher. Inflation adjusted for energy prices is expected to be in line with the inflation target at the end of the forecast period.
The risks in the inflation outlook are largely the same as before. However, the probability of lower inflation due to slacker international economic activity is judged to have declined somewhat. It is nevertheless important to carefully monitor new economic data in the coming months to see if they confirm the picture presented in the Inflation Report. The risks of higher inflation linked to wage formation have also subsided after the Municipal Workers' Union signed an agreement at lower levels than was originally feared, but a large number of collective wage agreements will expire during the forecast period. There are tensions in the labour market that could lead to wage increases which risk pushing up cost and inflationary pressures. As energy prices are now expected to remain relatively high over a longer period, the risks of contagion effects from these to other costs and prices have increased somewhat. All in all, the risks of lower inflation stemming from weaker economic activity are judged to be largely balanced by the risks of higher inflation due to cost developments.
The Riksbank's forecast for inflation assumes that the rise in energy prices is temporary and that the underlying, cyclically-related inflation rate will be relatively stable and in line with the target at the end of the forecast period. This is why the Executive Board of the Riksbank 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 coming years.
The minutes of the Executive Board's monetary policy discussion from yesterday's meeting will be published on 29 October 2003.
A press conference with Deputy Governor Irma Rosenberg, and the head and deputy head of the Monetary Policy Department, Anders Vredin and Kerstin Hallsten, will be held today at 1 p.m. at the Riksbank. Entry via the bank's main entrance, 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, e-mail: forradet@riksbank.se, fax +46-8-787 0526 or tel. +46-8-787 0100.
