How a monetary policy decision is made

Economic Commentaries, News The coronavirus crisis has tested the flexibility of the Riksbank's decision-making with regard to monetary policy. But essentially, the preparation process is the same now as prior to the crisis. In an Economic Commentary, Maria Sjödin, adviser at the Monetary Policy Department, describes the process when the Riksbank makes a monetary policy decision.

Read the entire Economic Commentary: The path to a monetary policy decision

Normally, the Executive Board of the Riksbank makes five monetary policy decisions per year and the monetary policy preparation process lasts about five weeks. The preparations can be roughly divided into four stages. The phase before the Monetary Policy Department (APP) presents the data to the Executive Board, the actual meetings with the Executive Board in the Monetary Policy Group (PBG), the phase after these meetings, and finally the monetary policy decision-making meeting and the communication in connection with it.

It is mainly this process of producing the background material on which the monetary policy decision is based that Maria Sjödin describes in her Commentary. She notes that while the preparation is a structured process, it also needs to be flexible, and she describes how the coronavirus crisis tested the Riksbank's preparedness and ability to act quickly and in several different ways. It has been necessary to think in new ways, not only in terms of working methods and decision-making processes but also in terms of actions. The focus has been on understanding developments in real time and responding with appropriate, but in some cases untried, tools to address acute problems in the economy. All in all, the crisis management during the pandemic meant that the Riksbank's decision-making processes required even closer cooperation between the Monetary Policy Department, the Financial Stability Department, the Markets Department and also the Payments Department.

Following the very turbulent 2020, management of the consequences of the pandemic is now more a part of the normal, ongoing work at the Riksbank. The structure of the preparation process is largely the same now as it was before the crisis, but the content of the preparation has changed in several ways, partly as a result of the Riksbank's extensive holdings of securities. Monetary policy is constantly facing new challenges, and it will continue to be important that the preparations for the monetary policy decisions are flexible and contribute to the Riksbank's capacity to act quickly and in different ways, writes Maria Sjödin.

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Updated 07/04/2022