Current forecast for the repo rate, inflation and GDP

29 April 2015

 

Measures to ensure that inflation continues to rise

The expansionary monetary policy is having a positive impact on the Swedish economy and inflation has begun to rise. To ensure that inflation rises towards the target quickly enough, the Executive Board of the Riksbank decided at its latest monetary policy meeting at the end of April that the Riksbank will buy government bonds for a further SEK 40-50 billion. In addition, the repo-rate path was lowered significantly compared with the decision in February. The repo rate was left unchanged at −0.25 per cent but the repo-rate path reflects the fact that it may be cut further. Slow increases in the repo rate are not expected to begin until the second half of 2016. 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 1 July, and the decision will be published on the following day, 2 July.

Repo rate with uncertainty bands

Per cent, quarterly averages

  Repo rate with uncertainty bands

Inflation has begun to rise

The expansionary monetary policy is having a positive impact on the Swedish economy and inflation has begun to rise. The fact that inflation is rising is partly due to the weakening of the krona over the last 12 months, which has led to higher import and goods prices. However prices for services, which are not affected as much by the exchange rate, are also increasing more rapidly than last year. At the same time, inflation expectations have increased somewhat.


The Riksbank's measures are pushing down interest rates for households and companies. This 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. CPIF inflation is expected to reach 2 per cent at the turn of the year 2015-2016.

CPI with uncertainty bands

Annual percentage change

CPI with uncertainty bands

CPIF with uncertainty bands

Annual percentage change

 CPIF with uncertainty bands

GDP – economic activity strengthening

Growth in the Swedish economy has been stronger than expected. The strengthening of economic activity has so far been mainly driven by a strong household sector and a rapid increase in housing investment. However, as international demand increases and growth in global manufacturing and trade expands, it is expected that Swedish exports will also increase at a faster pace. Supported by the expansionary monetary policy, GDP growth will rise in the years immediately ahead. The labour market will continue to improve in the coming years.

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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