Minutes of the monetary policy meeting held on 2 July

At the monetary policy meeting on 2 July, the Executive Board of the Riksbank decided to hold the repo rate unchanged at 1.0 per cent and to leave the repo-rate path largely unchanged.

It was observed at the meeting that economic developments both in Sweden and abroad have been largely in line with the forecast made by the Riksbank in the April Monetary Policy Update. The Executive Board noted that economic prospects abroad were different in different parts of the world, but the general assessment for the world as a whole was a gradual improvement in the coming years. GDP growth in Sweden is expected to be lower than normal in 2013, and then to rise in 2014 as demand abroad picks up. An improvement in the labour market is also expected then. There was also discussion of the division in the Swedish economy, with weak investment and exports, but stronger households. Households have had a good development in income, which has led to increased consumption and rising house prices. Finally, the discussion turned to the high level of debt among Swedish households, both from an international and a historical perspective, which was considered to make the economy more vulnerable to shocks.

The Executive Board was unanimous that monetary policy needed to continue to be expansionary, given the low rate of inflation. A majority of four members thus assessed that it was appropriate to hold the repo rate at 1 per cent until the second half of 2014, to support the economy and contribute to inflation rising towards the target. They also considered a largely unchanged repo-rate path in relation to the April Monetary Policy Update to be reasonable, as new information received since then had been largely as expected. The forecast for unemployment has been revised up, but the view of resource utilisation remains in principle unchanged as it is believed that much of the increase in unemployment is because the labour force will to a greater extent exist of groups thought to be on the periphery of the labour market.

It was noted that although a lower repo-rate path could lead to inflation attaining the target slightly sooner, it would also increase debt and thus the risks to economic developments in the longer term. The majority therefore considered that the current repo-rate path was a reasonable balance as it entails inflation and the real economy stabilising more in the short run, at the same time as taking into account more long-term risks linked to household debt.

Two members considered that there was scope to cut the repo rate to 0.75 per cent and to let it remain at this level until the second quarter of 2014. After that the two members advocated slightly different rates of increase. They assessed that this monetary policy would bring inflation back on target sooner, while resource utilisation would be better balanced. It could thus improve the conditions for the economy to manage future shocks and also potential risks linked to household debt.

The future development of the repo rate was also discussed at the meeting. There were different opinions regarding the probability of increases or cuts in the near term, even within the majority.

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