Minutes of the Monetary Policy Meeting held on 26 April 2017

At the monetary policy meeting on 26 April, the Executive Board of the Riksbank decided to continue purchasing government bonds during the second half of 2017, both nominal and real bonds, each corresponding to SEK 7.5 billion. Maturities and coupon payments on the government bond portfolio will also be reinvested. The repo rate will be held at –0.50 per cent and is not expected to be raised until mid-2018.

At the meeting, it was noted that the Executive Board was in agreement on the picture of economic developments and the outlook for inflation described in the draft Monetary Policy Report. Economic activity continues to strengthen, but the political situation abroad is creating risks to economic development going forward. Several Executive Board members pointed out the contradictory nature of international developments, with strong confidence indicators and better economic activity on the one hand and relatively large risks for a worse scenario on the other. It was noted that developments in the euro area have been positive but that inflationary pressures there are still low and that the ECB will continue to pursue a very expansionary monetary policy in the foreseeable future.

Inflation in Sweden has shown a rising trend for a few years, but is now expected to take slightly longer before stabilising around 2 per cent. In a situation where the inflation upswing is expected to be slower and there is still considerable economic uncertainty abroad, the Executive Board was in agreement that an expansionary monetary policy is still needed to provide support to inflation. The monetary policy stance abroad is also very important in this context. The members also discussed the outcome of the wage agreements that have recently been concluded on the Swedish labour market. These indicate slightly lower wage increases than previously expected by the Riksbank and thus lower cost pressures. A key issue for the Riksbank going forward will be to analyse what level of resource utilisation is required for inflation to come up to 2 per cent and remain there more permanently.

All the board members considered that it was appropriate to hold the repo rate unchanged at –0.50 per cent and that the repo rate needed to be kept at its current low level one quarter longer than in the forecast in February. Not until mid-2018 is a rate increase expected. Deputy Governor Henry Ohlsson had preferred an initial rate rise at the beginning of 2018 but did not enter a reservation on this point.

A majority also considered that purchases of government bonds should be extended, with nominal bonds for SEK 7.5 billion andreal bonds for SEK 7.5 billion. The justification for this was slightly lower cost pressures in Sweden, considerable uncertainty over political and economic developments abroad and the risk of the krona appreciating too rapidly if Swedish monetary policy were to deviate too much from policy abroad.

Three members entered reservations against the decision to extend purchases. They did not rule out the possibility of continuing them later on. Their reason for entering reservations was that current monetary policy is sufficiently expansionary and further stimulation would probably not provide any stronger support to the upturn in inflation.

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