Current forecast for the repo rate, inflation and GDP
4 September 2014
The repo rate
Economic activity is continuing to strengthen, but inflation is still low. The Executive Board of the Riksbank decided at its most recent monetary policy meeting, on 3 September, to hold the repo rate unchanged at 0.25 per cent, to contribute to inflation rising towards the inflation target of 2 per cent. They consider it appropriate to begin raising the repo rate at the end of 2015, when inflation is expected to be clearly higher. Towards the end of the forecast period, the repo rate is expected to be just over 2 per cent. From an historical perspective, this is an unusually low repo rate in a stage where economic activity is relatively good and CPIF inflation is close to 2 per cent.
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 27 October, and the decision will be published on the following day, 28 October.
Repo rate with uncertainty bands
Per cent, quarterly averages
Inflation is still low. In July, CPI and CPIF inflation amounted to 0.0 and 0.6 per cent respectively, measured as an annual percentage change. Seen in a slightly longer-term perspective, there are several explanations for the weak development in inflation. For instance, the weak demand, both in Sweden and abroad, has contributed to the rate of price increase in international goods prices being slow, to wages increasing slowly and to company price mark-ups being low.
The low repo rate will contribute to demand in the economy increasing, which will mean that wage increases rise and companies have greater opportunity to raise their prices. In addition, the rate of increase in international goods prices is expected to rise. This means that inflationary pressures will gradually increase. At the beginning of 2016, CPI inflation is expected to reach 2 per cent.
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
International growth is expected to rise in the coming years, but the recovery in the euro area will be slower than previously assumed. The weak developments in the euro area will dampen the already weak development in exports in Sweden, which will lead to somewhat slower GDP growth in the coming year than was previously forecast. At the same time, consumption and housing investment are expected to continue increasing at a good pace.
GDP growth is expected to be 1.7 per cent this year and 3.1 per cent next year.
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.