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Minutes of the Monetary Policy Meeting held on 4 September 2019

At the Monetary Policy Meeting on 4 September 2019, the Executive Board of the Riksbank decided to leave the repo rate unchanged at –0.25 per cent. As previously, the forecast for the repo rate indicates that the rate will be increased towards the end of the year or at the beginning of next year. However, low interest rates abroad and worsened sentiment mean that the repo rate is thereafter expected to be increased at a slower pace compared with the assessment in July.

The board members supported the picture of the economic outlook and inflation prospects described in the draft Monetary Policy Report. After several years of high growth, the Swedish economy has entered a calmer phase, something that has been included in the Riksbank’s forecasts for some time. Resource utilisation is softening but is still higher than normal and inflation has been close to the inflation target of 2 per cent since the beginning of 2017. According to some measures, long-term inflation expectations have fallen somewhat this year, but the overall picture is that they are close to 2 per cent. The development of inflation has been approximately in line with the Riksbank’s forecasts and, in the current situation, this argues in favour of keeping to the previously communicated direction of monetary policy for the next six months.

Even though the real economy and inflation abroad have largely developed as expected, the board members stressed that sentiment has worsened and that the risk of a faster slowdown has increased. This is partly linked to the ongoing trade conflict between the United States and China and uncertainty surrounding the United Kingdom’s withdrawal from the EU. Several members pointed out that market rates have fallen significantly during the year and that expectations of monetary policy have become increasingly more expansionary. Several central banks have also cut their policy rates or communicated that monetary policy may be made more expansionary. Market pricing indicates that market participants expect powerful monetary policy stimulation measures.

Increased unease in the global economy and interest rates that are expected to be low for a longer time mean that, in the members’ assessment, the repo rate needs to be raised at a slower pace in the period ahead, compared with the assessment in July.

All the members supported the forecast for the repo rate. One member expressed doubt about the forecast that the rate will be increased towards the end of the year or at the beginning of next year but, despite this, did not enter a reservation against the repo rate path. Several members emphasised that even though the Riksbank cannot act independently of global developments, in many respects Sweden is in a more favourable situation compared with other countries, with continued reasonably strong economic activity and inflation that has been close to target for some time. The Riksbank therefore has slightly greater degrees of freedom than previously to deviate from monetary policy abroad. A few members highlighted developments on the housing market and the risks associated with the high level of household indebtedness, which constitutes a vulnerability for the Swedish economy.