Current forecast for the repo rate, inflation and GDP
3 July 2014
The repo rate
Economic activity continues to strengthen in the Swedish economy. However, inflation is lower than expected and it is assessed that underlying inflationary pressures are clearly lower than assessed in April. The Executive Board of the Riksbank therefore assessed at its most recent meeting at the beginning of July that an even lower repo rate is needed for inflation to rise towards the target of 2 per cent. The Board therefore cut the repo rate by 0.5 percentage points to 0.25 per cent, at the same time as the repo-rate path was lowered substantially. Increases in the repo rate are not expected to begin until the end of 2015.
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 3 September, and the decision will be published on the following day, 4 September.
Repo rate with uncertainty bands
Per cent, quarterly averages
At the same time as economic activity is strengthening, inflation is low and the outcomes have been lower than expected. There has been a broad fall in inflation and it is now assessed that underlying inflationary pressures are clearly lower than assessed in April.
The low repo rate will contribute to higher demand in the economy as a whole, which will lead to inflation rising. In addition to leading to higher inflation, the expansionary monetary policy can also contribute to inflation expectations remaining anchored around 2 per cent by sending a clear signal that monetary policy will ensure that inflation approaches the target within the reasonably near future. CPIF inflation is expected to reach 2 per cent at the beginning of 2016.
CPI inflation, which includes the direct effects of changes in interest rates, will rise faster than CPIF inflation. This is because when the Riksbank raises the repo rate, household mortgage rates will also rise, which will affect the CPI but not the CPIF. In periods of significant changes in the repo rate, the CPIF provides a better picture of inflationary pressures.
CPI with uncertainty bands
Annual percentage change
CPIF with uncertainty bands
Annual percentage change
In Sweden, household consumption and housing investment have shown relatively strong development and are expected to continue increasing at a good pace. International demand is now increasing gradually. This will contribute to a gradual increase in growth in the more export-dependent parts of the Swedish business sector, too. GDP is expected to grow at a rate of 2.2 per cent this year and 3.3 per cent next year.
When economic activity strengthens, the labour market situation will also improve. Employment is expected to continue rising and unemployment to fall. Towards the end of the forecast period, unemployment is expected to amount to almost 6.5 per cent.
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.