Minutes of the monetary policy meeting held on 8 April
At the monetary policy meeting on 8 April, the Executive Board of the Riksbank decided to hold the repo rate unchanged at 0.75 per cent and to adjust the repo-rate path downwards.
It was noted at the meeting that the Executive Board largely agreed on the picture of economic prospects and the inflation outlook described in the draft Monetary Policy Update.
Economic developments abroad continue to improve, well in line with the Riksbank's earlier assessments. In Sweden, GDP growth was higher than expected in the fourth quarter of last year. This was partly due to temporary factors, but the broad upturn in demand implies that an economic upturn has begun. The prospects for the Swedish economy remain bright and a clear improvement in the labour market is expected during the second half of this year.
Economic activity is strengthening and household indebtedness as a share of disposable income is expected to increase more than was previously forecast. Inflation has been somewhat lower than expected, but only a minor revision has been made to the inflation forecast. CPIF inflation is expected to rise towards the end of the year and to be close to 2 per cent during the latter part of 2015.
Given that economic activity has strengthened and that the revisions to the inflation forecast are minor, a majority of four Board members considered it appropriate to hold the repo rate unchanged at the current low level of 0.75 per cent. They also assessed that it is appropriate to wait around one year before beginning to raise the repo rate, when inflation picks up.
Given the low rate of inflation, a majority of Board members also considered it appropriate to adjust the repo-rate path downwards so that it reflects a greater probability of a repo-rate cut in the near term compared with the assessment made in February.
Two members advocated cutting the repo rate to 0.50 per cent, as inflation has been lower than expected over a long period of time and to ensure that inflation rises towards the target. They both advocated a first repo-rate increase roughly in line with the forecast in the draft Monetary Policy Update, but had slightly differing views on the repo-rate path after this. One member considered it appropriate that at the end of the forecast horizon, the repo rate should coincide with the rate in the draft Monetary Policy Update, while the other member preferred a lower repo-rate path.
The members discussed the low inflation rate and some of them pointed out that now even minor revisions to the inflation forecast could affect their view of monetary policy. They also discussed the repo-rate path slightly further ahead, the long-run level for the repo rate and the significance of the exchange rate for the development of inflation. The need to implement macroprudential policy measures was emphasised, as were other measures that affect household demand for loans and the functioning of the housing market. There was also a discussion of to what extent household debt should influence monetary policy. Moreover, there was discussion of global risks to economic developments and potential consequences for developments in Sweden.
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