Minutes of the Monetary Policy Meeting held on 2 July 2019

At the Monetary Policy Meeting on 2 July 2019, the Executive Board of the Riksbank decided to leave the repo rate unchanged at –0.25 per cent. The forecast for the repo rate is also unchanged and indicates that it will be increased again towards the end of the year or at the beginning of next year.

The board members supported the picture of the economic outlook and inflation prospects described in the draft Monetary Policy Report. Economic activity in Sweden remains strong and inflation is close to the target of 2 per cent. They noted that economic development both in Sweden and abroad has been largely in line with the Riksbank’s forecasts and that new information since the monetary policy meeting in April has not led to any major revisions of the forecasts overall. This argues for not changing monetary policy either at this meeting.

At the same time, the board members emphasised that uncertainty in the international economy has increased, for example due to the escalated trade conflict between the United States and China. It was noted that participants on the financial markets seem to be expecting significantly worse economic development in the period ahead and hence further monetary policy stimuli. In several of the major economies, central banks have also signalled that monetary policy may become more expansionary, albeit not to the same extent as market pricing indicates. International risks are difficult to quantify in a forecast, but if they materialise, prospects may also deteriorate for the Swedish economy. It is therefore important that monetary policy proceeds cautiously.

The board members also noted that inflation in the months ahead will fall markedly as a result of lower energy prices. In this context, it was pointed out that if this were to significantly dampen inflation expectations, the ability for monetary policy to keep inflation close to 2 per cent would worsen. Several board members also pointed to the importance of underlying inflation continuing to rise.

Several of the board members discussed the development of the Swedish krona. Some referred to an article in the draft Monetary Policy Report which discusses the krona’s development in the longer term and draws the conclusion that the krona should gradually appreciate going forward, but uncertainty is considerable regarding by how much and how quickly this will happen. Some also emphasised that large and unexpected fluctuations in the exchange rate make it more difficult to stabilise inflation around the target.

A few board members highlighted the fact that developments on the housing market and the risks associated with the high level of household indebtedness constitute a vulnerability for the Swedish economy.

The intended changes to the operational framework for the implementation of monetary policy were also mentioned. The changes are of a technical nature and are not aimed at altering the direction of monetary policy but at making implementation of monetary policy as efficient as possible.

All board members supported the decision to leave the repo rate and the forecast for the repo rate unchanged to provide continued support to inflation. But there were some differences of opinion as to exactly when it might be appropriate to raise the rate next time.

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