Anna Breman: Monetary policy in an uncertain world

News “The international banking problems are adding uncertainty to an already challenging environment. At the same time, underlying inflation has continued to rise, indicating that monetary policy needs to remain contractionary.” These were the words of First Deputy Governor Anna Breman when she spoke today at the Nordic Cash and Treasury Management Conference in Stockholm.

In her presentation, Ms Breman commented on the ongoing banking turmoil. “The international banking problems have led to large movements in financial markets in recent days. At present, we see no threat to Swedish financial stability. But we are monitoring developments closely and, as always, are prepared to act if necessary."

At the same time, inflation is problematically high. Energy prices have fallen slightly faster than expected, but this is completely offset by other prices continuing to rise broadly. “The fact that food prices in particular are increasing so rapidly is especially challenging. This is hitting low-income households particularly hard. The weak krona is part of the reason for the increase in food prices, but it cannot explain all of the rapid rise," said Anna Breman. For example, she pointed out that Norwegian food prices have not risen as fast, despite a similar currency depreciation.

The Riksbank's rate hikes have a broad impact on the economy and affect interest rates for households and companies as well as municipalities and regions. “We know that it takes time for monetary policy to have its full effect and this will be increasingly reflected in inflation figures during the year.”

After a strong recovery from the pandemic, the Swedish economy is now slowing down. Developments are divided, with a clear decline in domestic sectors while the export industry continues to perform well. However, the domestic sectors have the greatest impact on inflation in Sweden. The rate hikes have also helped to keep inflation expectations well anchored, which also creates favourable conditions for inflation to fall during the year,” said Anna Breman.

“The assessment we made in February was that the policy rate would probably be raised by 0.25 or 0.50 percentage points during the spring. We also made it clear that incoming data and its impact on the development of inflation will be crucial factors for our monetary policy stance. Prior to our monetary policy meeting at the end of April, we will have more information on economic performance, inflation and financial conditions, and I will consider this information in order to assess the appropriate monetary policy. It remains extremely important for us to act to return inflation to a low and stable level in a timely manner,” Anna Breman concluded.

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Updated 21/03/2023