Minutes of the Monetary Policy Meeting held on 18 December 2019

Since the monetary policy decision in October, economic developments both globally and in Sweden have been in line with the Riksbank’s forecasts. As in the rest of the world, the Swedish economy has entered a phase with a lower growth rate. Uncertainty over international developments is still considerable, but according to several members the risks seem to have recently decreased somewhat. Several members emphasised that the slowdown now taking place in the Swedish economy means that we are going from a higher-than-normal level of activity to a more normal economic situation.

Inflation – which has been close to the inflation target of 2 per cent for a prolonged period – has also developed in line with the Riksbank’s forecast over recent months. Resource utilisation is expected to remain fairly normal while inflation prospects overall are unchanged, which means that the conditions for close-to-target inflation continue to be good.  A majority of members therefore considered it appropriate to now raise the repo rate from –0.25 per cent to zero per cent, in line with the forecast from October.

This year, in response to weaker economic activity, the Riksbank has successively lowered the forecast for how much the repo rate will be increased in the years to come, something which several members noted. In the longer term, the repo rate is likely to be higher than zero. But given the low level of global interest rates and the uncertainty surrounding economic and inflation developments, it is, in the Executive Board’s view, difficult to determine when it will be appropriate to raise the repo rate next time. With a repo rate of zero per cent in the coming years and the Riksbank’s extensive purchases of government bonds, monetary policy remains very expansionary.

Several members discussed the period with a negative policy rate. It was noted that this was an important reason behind the strong economic activity of recent years and the return of inflation to the target. However, it was also pointed out that more analysis is needed of the potential effects if negative interest rates are perceived as more permanent. Given the low level of interest rates abroad, the view was that a periodically negative repo rate in the future cannot be ruled out. As always, monetary policy will be adjusted if conditions change.

Two members entered reservations against the decision to raise the repo rate now and argued instead for a raise some time into the forecast period.