Minutes of the Monetary Policy Meeting held on 20 December 2016

At the monetary policy meeting on 20 December, the Executive Board of the Riksbank decided to continue purchasing government bonds during the first six months of 2017, both nominal and real bonds, each corresponding to SEK 15 billion. In addition, reinvestments of maturities and coupon payments on the government bond portfolio will amount to around SEK 30 billion during 2017. The repo rate is retained at −0.50 per cent and there is still a greater probability that the rate will be cut than that it will be raised in the near term. Increases in the repo rate are not expected to begin until the beginning of 2018.

It was noted at the meeting that the Executive Board agreed on the picture of economic developments in Sweden and abroad, and the outlook for inflation described in the draft Monetary Policy Report.

Since the previous monetary policy meeting in October, the economic outlook abroad has brightened somewhat. However, developments ahead are fraught with uncertainty, which is noted in different ways during the meeting and was also made clear in the account of questions discussed during the drafting process.

In Sweden, the Riksbank's monetary policy, with a negative repo rate and purchases of government bonds, has contributed to a high level of growth, falling unemployment, higher inflation and rising inflation expectations, not least in the longer run where inflation expectations are now close to 2 per cent. The strong economic activity means there are good conditions for inflation to continue rising. It is expected to reach 2 per cent in the middle of 2018, more or less regardless of which measure of inflation one uses.

But there are still risks that can jeopardise the upturn in inflation. The outcomes for inflation have been lower than expected in recent months and this illustrates the uncertainty over how quickly inflation will rise. It is difficult to know, for instance, how the krona exchange rate will develop in an environment where the ECB has extended its asset purchase programme and the Federal Reserve has raised its policy rate. A slow appreciation is expected going forward, and it is important to the upturn in inflation that this appreciation is slow.

All of the Executive Board members assessed that it was now appropriate to hold the repo rate unchanged at –0.50 per cent and to reinvest maturities and coupon payments on the government bond portfolio until further notice. During 2017 these are unevenly distributed over the year, so the reinvestments should be spread out. The discussions also concerned the repo-rate path, but there were only very slight differences in the members’ opinions and all supported the proposed repo-rate path in the draft Monetary Policy Report. Increases in the repo rate are not expected to begin until the start of 2018.

Moreover, a majority of the Executive Board members considered that the risks to the upturn in inflation call for a continuation of the government bond purchases during the first half of 2017 and that they should be extended by SEK 30 billion, corresponding to SEK 15 billion in nominal bonds and SEK 15 billion in real bonds.

Three members entered reservations, with slightly different motives, against the decision to extend the government bond purchases by SEK 30 billion.

Also discussed at the meeting, as on several previous occasions, were the risks linked to low interest rates over a long period of time and the risks linked to inflation undershooting the target over a long period of time. As on previous occasions, several members of the Executive Board expressed continued concern over the growing household indebtedness and emphasised the need to combine measures in different policy areas to attain a long-term sustainable development of the Swedish economy.

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