The objective of monetary policy

According to the Sveriges Riksbank Act, the objective of monetary policy is to “maintain price stability”. The Riksbank has interpreted this objective to mean a low, stable rate of inflation.

More precisely, the Riksbank's objective is to keep inflation around 2 per cent per year, as measured by the annual change in the consumer price index (CPI). There is a tolerance range of plus/minus 1 percentage point around this target. At the same time, the range is an expression of the Riksbank’s ambition to limit such deviations. In order to keep inflation around 2 per cent the Riksbank adjusts its key interest rate, the repo rate.

Monetary policy decisions

The Executive Board usually has eight scheduled monetary policy meetings over the course of a year, at which it makes decisions regarding the repo rate. In conjunction with four of these meetings an Inflation Report is published that explains the Board’s decision. At the other four meetings the Executive Board makes a decision on the basis of the data that has been received since the previous Inflation Report.

Monetary policy channels

The channels through which a change in the repo rate influences inflation and the rest of the economy are called the transmission mechanisms of monetary policy. One widely held view regarding these mechanisms is that it takes time for a change in the repo rate to have an impact on inflation. For this reason, the Riksbank’s monetary policy decisions are based on a forecast of inflation and economic activity in the period ahead.