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Sveriges Riksbank: Minutes of the monetary policy meeting held on 2 July

At the monetary policy meeting on 2 July, the Executive Board of the
Riksbank decided to cut the repo rate to 0.25 per cent and to adjust
the repo-rate path downwards.

It was noted at the meeting that the Executive Board agreed on the
picture of economic prospects and the inflation outlook described in
the draft Monetary Policy Report.

A gradual improvement in international economic activity in general is
expected over the coming years. At the same time, global inflationary
pressures are still low and the forecast for international policy
rates has been revised downwards. Economic activity is strengthening
in Sweden and household indebtedness as a share of disposable income
is expected to increase more than was previously forecast. However,
inflation has been lower than expected and the assessment is that
inflationary pressures are clearly lower. With the adopted monetary
policy, CPIF inflation is expected to rise towards the end of the
year and to reach 2 per cent in early 2016.

The Executive Board agreed that an even more expansionary monetary
policy is now needed given that inflation has been lower than
expected, inflationary pressures are now assessed to be lower and the
forecast for international policy rates has been revised downwards.

A lower repo rate and a lower repo-rate path than assessed in April
are needed so that inflation will rise towards the target quickly
enough to ensure that inflation expectations remain anchored at 2 per
cent. However, the low level of interest rates increases the risk
that the economy will develop in a way that is not sustainable in the
long run. The Executive Board therefore agreed that it is now even
more important for other policy areas to take measures to manage the
risks associated with household indebtedness and the development of
the housing market.

However, different members of the Executive Board had different
assessments of how much the repo rate needed to be cut at this
monetary policy meeting. A majority considered it appropriate to cut
the repo rate by 0.5 percentage points to 0.25 per cent. They also
considered it appropriate to postpone a first increase to the end of
2015. Their assessment was that the repo rate will then gradually
begin to be raised to reach just over 2 per cent during the latter
part of 2017. The purpose of the large cut in the repo rate and the
revision of the repo-rate path is to send a clear signal that rising
inflation is now the most important task for monetary policy.

Two members advocated cutting the repo rate by 0.25 percentage points,
to 0.5 per cent. They also considered it appropriate to postpone a
first increase, but to 2016, and that the repo rate should be raised
slowly thereafter. These members shared the view that it is important
that inflation approaches the target in the near future, but felt
that this proposal entailed a better balance for attaining the
inflation target at the same time as giving some consideration to the
high level of household indebtedness.

Monetary policy in a small open economy was discussed at the meeting
as well as the position of Sweden in an international context given
that the recovery in different parts of the world is uneven with
regard to growth, and given that monetary policy also differs. The
Executive Board also discussed the need for measures to be taken to
manage the risks associated with household indebtedness.

Press office tel. 46 8 787 0200


Författare Hugin

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