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.

At its meeting on 18 December, the Executive Board of the Riksbank decided to hold the repo rate unchanged at 4 per cent. The Riksbank’s view of the future repo rate path remains largely the same as in October. During the first half of 2008 the repo rate is expected to need to be raised to around 4.25 per cent, but there is considerable uncertainty due to the turmoil in the international financial markets. The Riksbank’s assessment is that this development in the repo rate will contribute to an inflation rate in line with the 2 per cent target from 2009 onwards, at the same time as production and employment develop in a balanced manner

The Riksbank’s decision is based on the economic outlook and inflation forecasts presented in the Monetary Policy Update.

Report by Frederic S Mishkin and Francesco Giavazzi

In spring 2005 the Riksdag Committee on Finance decided to evaluate the monetary policy conducted by the Riksbank during the period 1995-2005. The Committee appointed two professors, Frederic S Mishkin, formerly of Columbia University in New York and now a member of the Federal Reserve Board of Governors, and Francesco Giavazzi, of Bocconi University in Milan, to carry out the evaluation.

The report "An evaluation of Swedish monetary policy 1995-2005" was published on 28 November.