Current forecast for the repo rate, inflation and GDP
28 October 2015
The repo rate
The Swedish economy is strengthening and inflation is showing a clear upward trend. However, there is still considerable uncertainty regarding the strength of the global economy and central banks abroad are expected to pursue an expansionary monetary policy for a longer time. Compared with the previous assessment, inflation is expected to be slightly lower in 2016 and 2017. CPIF inflation is still expected to be close to 2 per cent during 2016.
At its most recent monetary policy meeting at the end of October, the Executive Board of the Riksbank considered it necessary to make monetary policy more expansionary to safeguard the robustness of the upturn in inflation. The Executive Board decided therefore to extend the government bond purchasing programme by an additional SEK 65 billion so that purchases amount to SEK 200 billion in total by the end of June 2016, and to keep the repo rate unchanged at -0.35 per cent. Not until the second half of 2017 is the repo rate expected to be increased.
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 14 December, and the decision will be published on the following day, 15 December.
Repo rate with uncertainty bands
Per cent, quarterly averages
There is a clear upward trend in inflation since last year. The weakening of the krona in recent years is key to explaining this upturn, with prices rising mainly for imported goods and services. Recently, however, there have been signs that domestic demand is also contributing to the upturn. For example, the prices of various services, including hotel and restaurant visits, have risen.
When the economy overseas grows stronger, international prices and the demand for Swedish goods and services rise. Together with stronger demand in Sweden, this makes it easier for companies to increase prices to offset rising costs. Inflation, measured by the CPIF excluding energy, is expected to rise gradually and be close to 2 per cent in 2016.
CPI inflation is directly affected by households' interest expenditure. The large repo-rate cuts the Riksbank has made recently thus contribute to holding down CPI inflation. In the long run, when the interest rate has stabilised, the rate of increase in the CPI and the CPIF will be the same.
CPI with uncertainty bands
Annual percentage change
CPIF with uncertainty bands
Annual percentage change
The low interest rates are contributing to stable growth in Sweden and a fall in unemployment. Despite weak international demand, growth in the Swedish economy has been relatively good in recent years, largely driven by domestic demand, with strong consumption and high housing investment.
Demand is expected to broaden in the period ahead. Higher international growth will also lead to faster Swedish export growth, which increases the need for investment. Underpinned by the expansionary monetary policy, GDP is expected to grow by almost 3 per cent on average in the years ahead, which is slightly stronger than the historical average.
GDP with uncertainty bands
Annual percentage change, seasonally-adjusted data
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.