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It takes time from a change being made in the repo rate until the change has an effect on the economy. Decisions on the repo rate thus always depend on how the economy is expected to develop a few years ahead.
The Riksbank's interest rate decision is therefore based on forecasts of economic developments in Sweden. Since 2007 these forecasts have been based on the path for the repo rate that the Riksbank considers to be well-balanced when the forecasts are made.
A well-balanced monetary policy is normally a question of finding an appropriate balance between stabilising inflation around the inflation target and stabilising the real economy, for example production and employment. There is no general answer to the question of how quickly the Riksbank aims to bring the inflation rate back to 2 per cent if it deviates from the target. The Riksbank’s ambition has generally been to adjust the repo rate and the repo rate path so that inflation is expected to be fairly close to the target in two years’ time.
A forecast is made up of many parts
To be able to make a forecast of economic developments the Riksbank must have an idea of how both the supply and demand for goods and services will develop. The Bank achieves this by studying a number of different parts, such as how quickly the economy is growing, how many people are unemployed, how much is produced during one hour (productivity), developments in the financial markets and many other things.
As the economic reality is complex, the Riksbank makes assumptions on the basis of simplified correlations, economic models, in its forecasting work. As the models are simplifications, they are combined with assessments by the economists.
Read more
You can find more information about the Riksbank’s forecasts and interest rate decisions under the links below.