Current forecast for the repo rate, inflation and GDP
The Executive Board of the Riksbank decided at its most recent meeting in December to hold the repo rate unchanged at 0.25 per cent. The repo rate is expected to remain at this low level until autumn 2010.
The recovery from the severe depression is continuing and inflationary pressures will be low in the coming period. The repo rate needs to be low over a long period of time to attain the inflation target of 2 per cent and to support the recovery in the economy. The Executive Board of the Riksbank therefore decided at its most recent meeting in December to hold the repo rate unchanged at 0.25 per cent. The repo rate is expected to remain at this low level until autumn 2010. It will thereafter be raised to more normal levels to attain an inflation rate in line with the target.
Repo rate with uncertainty bands
Per cent, quarterly averages
The fact that the Riksbank presents its views on an appropriate path for the repo rate does not meet that it is committing itself to a particular future monetary policy. The repo rate path is a forecast and not a promise. As will all forecasts, the forecast for the repo rate may need to be changed on the basis of new information on economic developments abroad and in Sweden and the effects these may have on the prospects for inflation and economic activity in Sweden.
The Executive Board of the Riksbank decides on the repo rate six times a year. At the same time, a forecast for the repo rate over the coming years, known as the repo rate path, is published. The decision on the repo rate always applies until the next monetary policy meeting, when a new decision is made. The next meeting is on 10 February 2010 and the decision will be published on the following day, on 11 February 2010.
The weak labour market will contribute to inflationary pressure being low over the coming years. Inflation measured in terms of the consumer price index, the CPI, is expected to become positive in December 2009, and then to rise weakly during the first half of 2010. After that the CPI is expected to rise at a faster rate when mortgage rates increase in connection with raises in the repo rate during the latter part of 2010. CPI inflation will at most amount to just over 3.5 per cent at the beginning of 2012.
The large changes in the repo rate will affect mortgage rates, which are included in the CPI. There will thus be large fluctuations in the CPI in the future. The CPIF underlying inflation rate (the CPI with a fixed mortgage rate) is on the other hand more stable, and will be close to 2 per cent at the end of the forecast period.
CPI with uncertainty bands
Annual percentage change
The financial markets are improving all the time and the measures taken by central banks and public authorities are having an effect. The world economy is continuing to improve and this benefits economic developments in Sweden. GDP in Sweden has begun to grow again, following the deep recession at the end of last year. Despite the Swedish economy growing once again, GDP is expected to show a fall of 4.5 per cent for the whole year 2009, which means that the year will go down in history for the largest fall in GDP in one single year in modern times.
Economic activity will be further strengthened in the following years as exports rise more quickly, which also entails increased investment. GDP is expected to grow by 3.4 per cent in 2011 and by 3.5 per cent in 2012.
GDP with with uncertainty bands
Annual percentage change, seasonally-adjusted data
Notes and sorces
Note. The uncertainty bands for the repo rate, inflation and GDP are based on the ability of risk-adjusted market rates to forecast the future repo rate. The uncertainty bands in the fi gures are based on historical forecast errors.
Sources: Statistics Sweden and the Riksbank.
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