Questions and answers about the repo rate decision on 19 December 2011

Why have you cut the repo rate?

The economic outlook abroad has deteriorated and GDP growth in the euro area is expected to be low in the period ahead. This weaker economic development will also have a dampening effect on the Swedish economy and growth in Sweden is now expected to slow down. Exports will be much weaker next year and the poorer economic outlook means that Swedish households and companies will postpone their consumption and investment. At the same time, underlying inflation is low. The weaker demand in the Swedish economy, together with the poorer outlook abroad, will also help to keep inflationary pressures low in the period ahead.

In order to gradually stabilise inflation around 2 per cent and resource utilisation in the economy around a normal level, there is a need to cut the repo rate and to keep it low next year.

How will the Swedish economy be affected by the public finance problems in the euro area?

In order to redress their substantial public deficits, several euro countries need to implement stringent measures to tighten their fiscal policy. This will entail weak growth in these countries in the years ahead. When economic activity is weak abroad then Swedish exports also suffer and will decline going forward. The uncertain situation also means that Swedish households and companies will be more cautious and will postpone their consumption and investment. This all means that the Swedish economy will slow down.

How do you think that the problems in the euro area will be resolved?

Our assessment is that sufficient measures will be taken to resolve the most acute and immediate problems in the euro area. This entails, for instance, an orderly renegotiation of the Greek national debt and that the problems in the larger euro area countries do not escalate.  But there is still considerable uncertainty.