Current forecast for the repo rate, inflation and GDP

6 July 2016

 

Monetary policy

Economic activity in Sweden is continuing to strengthen, but there is considerable uncertainty over economic developments and this has increased as a consequence of the result of the British referendum on the EU. A highly expansionary monetary policy is needed to provide support to the Swedish economy and rising inflation. The Executive Board of the Riksbank therefore decided at its latest monetary policy meeting at the beginning of July to hold the repo rate unchanged at -0.5 per cent. Given the increased uncertainty, the Executive Board now assesses that it will take longer before the repo rate needs to be raised. Slow increases in the repo rate are not expected to begin until the second half of 2017. The purchases of government bonds will continue during the second half of 2016, as decided in April.

Repo rate with uncertainty bands

Per cent, quarterly averages

  Repo rate with uncertainty bands

Inflation

CPI inflation has been held back by falling interest costs and remains low.
In contrast, CPIF inflation has shown a rising trend since the beginning of 2014 and was 1.1 per cent in May. The rise is broad and is connected to the previous wakening of the krona and the rising resource utilisation in the Swedish economy.

However, the conditions for continued rising inflation are deemed to be good. The Swedish economy is growing at a good pace and resource utilisation is rising. With a stronger development of the labour market, wages are expected to increase more rapidly and higher demand will make it easier for companies to raise their prices. The krona is expected to gradually strengthen during the forecast period and will thus contribute to dampening inflation. The upturn in inflation will therefore need to be fuelled more by price increases on goods and services with less import content. CPIF inflation is expected to reach 2 per cent during 2017.

 

CPI with uncertainty bands

Annual percentage change

CPI with uncertainty bands

CPIF with uncertainty bands

Annual percentage change

 CPIF with uncertainty bands

GDP

The development of the Swedish economy has been strong for some time, supported by an expansionary monetary policy. GDP grew by 2.0 per cent in the first quarter of 2016, compared with the previous quarter and calculated as an annual rate, which was approximately as the Riksbank expected. Growth is expected to remain good in the coming years, partly as a result of the recovery abroad and the expansionary monetary policy. However, weaker international growth and increased uncertainty in the wake of the results of the UK referendum on EU membership contribute to a downward revision in the forecast for GDP growth in 2016 and 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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