Current forecast for the repo rate, inflation and GDP

12 February 2015

The repo rate

The recent development of inflation has been roughly as expected, but there is a risk that low oil prices will dampen inflation expectations, and thus inflation, more than is assumed in the forecast. To this can be added increased uncertainty about developments abroad and on the financial markets.


At its most recent monetary policy meeting in mid-February, the Executive Board of the Riksbank assessed that a more expansionary monetary policy is needed to support the upturn in underlying inflation so that CPIF inflation approaches 2 per cent and to ensure that long-term inflation expectations are compatible with the inflation target. The Board therefore cut the repo rate to -0.10 per cent and adjusted the repo-rate path downwards. At the same time, the interest rates on the fine-tuning transactions in the Riksbank's operational framework for the implementation of monetary policy were restored to the repo rate +/- 0.10 percentage point. The repo rate is expected to remain at -0.10 per cent until CPIF inflation is close to 2 per cent. The assessment is that it will not be appropriate to increase the repo rate until the second half of 2016.

 

When the repo rate is close to its lower bound, monetary policy can be made more expansionary by purchasing government bonds. The Riksbank will soon make purchases of nominal government bonds with maturities from 1 year up to around 5 years for a sum of SEK 10 billion. This measure also contributes to making monetary policy more expansionary.

 

The Executive Board of the Riksbank normally makes decisions on the repo rate six times a year. At the same time, a forecast for the repo rate over the coming years, known as the repo-rate path, is published. The next monetary policy meeting is planned for 28 April, and the decision will be published on the following day, 29 April.

Repo rate with uncertainty bands

Per cent, quarterly averages

  Repo rate with uncertainty bands

Inflation

Inflation measured in terms of the CPI (consumer price index) is currently negative. This is partly because household mortgage interest expenditure has fallen as the repo rate has been gradually cut. To some extent, the low level of inflation is due to lower energy prices. Inflation measured in terms of the CPIF excluding energy appears to have bottomed out and was 1.1 per cent in December. Wages are expected to increase more rapidly as resource utilisation rises and it will be easier for the companies to pass on their cost increases to higher consumer prices. CPIF inflation is expected to reach 2 per cent in mid-2016. 

CPI with uncertainty bands

Annual percentage change

CPI with uncertainty bands

CPIF with uncertainty bands

Annual percentage change

 CPIF with uncertainty bands

GDP

The recovery abroad is slow, but growth in Sweden will benefit from the low oil prices, the weaker krona and the very low repo rate. Over the coming years, a gradual increase in demand from abroad is expected to lead to a faster increase in exports and business sector investment. GDP growth is thereby expected to increase at a faster pace in the coming period. GDP is expected to grow by 2.7 per cent this year and then by 3.3 per cent in 2016 and 2.2 per cent in 2017.

GDP with uncertainty bands

Annual percentage change, seasonally-adjusted data

 GDP with uncertainty bands

 

Notes and sources for the figures

The uncertainty bands show the 50, 75 and 90 per cent chances of the repo rate, inflation and GDP being within the respective range. The bands are based on historical forecast errors.

 

Sources: Statistics Sweden and the Riksbank.

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