Monetary Policy Report, February 2023

High inflation creates problems in the economy. To bring down inflation and safeguard the inflation target, the Executive Board assesses that monetary policy needs to be tightened further. The Executive Board has therefore decided to raise the Riksbank’s policy rate by 0.5 percentage points, to 3.0 per cent. The forecast for the policy rate indicates that it will probably be raised further during the spring. As complementary measures to the higher policy rate, the Executive Board has also decided to reduce the Riksbank's asset holdings at a more rapid pace, by selling government bonds and offering larger volumes of Riksbank Certificates in the weekly monetary policy operations.

Swedish inflation is very high. CPIF inflation rose to just over 10 per cent in December. Even disregarding the rapidly increasing energy prices, inflation was high and still rising. It is important for confidence in the inflation target that inflation falls back clearly this year and there are many indications that it will do so. But it is uncertain whether inflation will fall sufficiently quickly and far enough, not least given the fact that underlying inflation is still rising. Moreover, if the krona continues to be weak, it will be considerably more difficult for the Riksbank to return inflation to the target more permanently.

Although a tighter monetary policy means that economic activity will weaken further in the near term, achieving low and stable inflation within a reasonable period of time is a prerequisite for good growth in the Swedish economy. If inflation is persistently high, the negative consequences for Swedish growth and the labour market will be much greater in the long run. Tightening monetary policy more now reduces the risk of even more serious problems with inflation and greater monetary policy tightening further ahead, with more widespread negative consequences for the Swedish economy.