Current forecast for the repo rate, inflation and GDP

2 July 2015

GDP

The low interest rate contributes to economic activity in Sweden strengthening. In the shadow of weak international demand, recent years' growth in the Swedish economy has largely been driven by strong domestic demand. Growth has been particularly strong in household consumption and in housing investments. Swedish exports are also benefiting from the current growth in international demand. Supported by the low interest rates, Swedish GDP will rise faster than the historical average in the coming years.

GDP with uncertainty bands

Annual percentage change, seasonally-adjusted data

 GDP with uncertainty bands

Inflation

The Riksbank's measures have lowered interest rates in the Swedish economy in general to stimulate inflation to rise towards the target. The expansionary monetary policy is having an effect, inflation is rising. In May, CPIF inflation was 1.0 per cent.


The lower interest rates will increase demand in the economy, which will make it easier for companies to pass on their cost increases to consumer prices. The expansionary monetary policy will also contribute to the krona remaining at a weaker level for a longer period of time, which will lead to a faster increase in the demand for exports and higher prices for imported goods. The Riksbank assesses that CPIF inflation will be close to 2 per cent from the end of 2015.


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

CPI with uncertainty bands

CPIF with uncertainty bands

Annual percentage change

 CPIF with uncertainty bands

Monetary policy

Inflation is rising and economic activity in Sweden is continuing to strengthen. But uncertainty abroad has increased and it is difficult to assess the consequences of the situation in Greece. Since the repo-rate decision in April, the krona has also become stronger than the Riksbank had forecast and the development of the exchange rate remains a risk to the upturn in inflation.


In this uncertain environment, monetary policy needs to be even more expansionary to ensure that inflation continues to rise towards the target of 2 per cent. At its most recent monetary policy decision at the beginning of July, the Executive Board of the Riksbank therefore decided to cut the repo rate by 0.10 percentage points to -0.35 per cent and to extend the purchases of government bonds by a further SEK 45 billion with effect from September and until the end of the year. These measures and the readiness to do more underline that the Riksbank is safeguarding the role of the inflation target as a nominal anchor for price setting and wage formation.


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 2 September, and the decision will be published on the following day, 3 September.

Repo rate with uncertainty bands

Per cent, quarterly averages

  Repo rate 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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