Current forecast for the repo rate, inflation and GDP
28 October 2014
The repo rate
The Swedish economy is relatively strong and economic activity is continuing to improve. But inflation is too low. The Executive Board of the Riksbank decided at its most recent monetary policy meeting at the end of October that monetary policy needs to be even more expansionary for inflation to rise towards the target of 2 per cent. The Board cut the repo rate by 0.25 percentage points to zero per cent, and made a significant downward revision to the repo-rate path. Their assessment is that the repo rate needs to remain at this level until inflation clearly picks up. It is assessed as appropriate to slowly begin raising the repo rate in the middle of 2016.
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 15 December, and the decision will be published on the following day, 16 December.
Repo rate with uncertainty bands
Per cent, quarterly averages
Inflation is low. An important explanation for this is that companies have found it difficult to pass on their cost increases to higher prices when demand has been weak and uncertain. There are also signs that price increases have been held back by structural factors, such as increasing competition.
Over the past year, inflation has been surprisingly low in relation to both the Riksbank's forecasts and those of other analysts. At the same time, inflation abroad has fallen. The Riksbank now assesses that it will take longer for inflation to reach the target level. The very low repo rate stimulates demand in the Swedish economy and contributes to a gradual rise in CPIF inflation. During the first half of 2016, CPIF inflation is expected to reach 2 per cent.
CPI inflation, which includes the direct effects of changes in interest rates, is currently very low, which is linked to the fact that the Riksbank has cut the repo rate substantially in recent years. When the Riksbank eventually begins to raise the repo rate, household mortgage rates will also rise, which will affect the CPI and mean that it rises faster than 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, economic activity is continuing to improve, primarily driven by good growth in household consumption and housing investment. Exports, which have been hampered by the relatively weak developments abroad, will increase more rapidly when economic activity improves in the countries we trade with. The labour market will continue to strengthen in the years ahead and there will be a clear fall in unemployment.
GDP growth is expected to be 1.9 per cent this year, 2.7 per cent in 2015 and 3.3 per cent in 2016.
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.