Minutes of the Monetary Policy Meeting held on 19 December 2017
At the Monetary Policy Meeting on 19 December 2017, the Executive Board of the Riksbank decided to hold the repo rate unchanged at -0.50 per cent. It is expected that rate rises will begin at a slow pace in mid-2018, which is the same assessment as made at the meeting in October. The Executive Board has also decided to begin reinvestment of the bonds that mature in 2019 during January 2018.
The Executive Board noted that the Riksbank’s overall assessment of the economic outlook and inflation prospects in the years ahead remains the same as in the forecast in October.
Economic activity abroad is increasingly strong but global inflationary pressures are subdued and the normalisation of monetary policy abroad is expected to proceed slowly. In Sweden, economic activity is still strong and resource utilisation is higher than normal. CPIF inflation is close to 2 per cent, as are inflation expectations.
Several board members noted that although CPIF inflation is 2 per cent, it has taken time and required a great deal of support from monetary policy to achieve this. In order for inflation to remain close to 2 per cent going forward, monetary policy needs to continue to be expansionary. It is therefore too early to change the direction of monetary policy.
The Executive Board unanimously agreed to leave the repo rate unchanged at –0.50 per cent, with some slight differences in opinion regarding the appropriate time to initiate slow rate rises. Views also differed as regards the need to bring forward reinvestments of maturing government bonds. Large maturities, amounting to a good SEK 50 billion, will occur during the first half of 2019. In addition, there are coupon payments of a total of around SEK 15 billion from January 2018 to June 2019. A majority of the Executive Board considers it appropriate to initiate reinvestments of these maturities and coupon payments as early as January 2018 and to allow them to continue until the middle of 2019. This means that the Riksbank’s holdings of government bonds will increase temporarily in 2018 and the beginning of 2019. Two members instead considered it more appropriate to wait and decide at a later stage whether, and if so how, redemptions during 2019 shall be reinvested.
Several members discussed aspects of the normalisation of monetary policy and how much monetary policy room for manoeuvre the Riksbank has in relation to central banks abroad. In this context, it was pointed out that the development of the exchange rate is particularly important.
Developments on the Swedish housing market were also discussed. The increase in housing supply and slowdown in housing prices are welcome developments. Although there are risks associated with the developments on the housing market, it was also noted that the strong economic activity in Sweden and abroad indicates only a rather moderate fall in housing prices.
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