Repo rate raised by 0.25 percentage points to 4.25 per cent

At its meeting on 12 February, the Executive Board of the Riksbank decided to raise the repo rate to 4.25 per cent. Inflation is expected to be high, while economic activity remains good. A repo rate of around 4.25 per cent over the coming year will contribute to bringing inflation back towards the target of 2 per cent a couple of years ahead. It will also lead to a balanced development in production and employment. However, there is still considerable uncertainty regarding the economic outlook and inflation prospects.

Good economic development

The Riksbank’s assessment of the economic outlook and inflation prospects for the Swedish economy remains largely the same as in December. Economic activity in Sweden remains good and the labour market is strong. GDP growth will slow down over the year and the increase in employment will slacken. Resource utilisation in the economy will nevertheless be higher than normal.

Inflation above the target

Inflation has risen rapidly in Sweden in 2007 and will remain high over the coming year. The inflation rate has been pushed up by higher energy and food prices, but there are also high cost pressures in the background. Inflation expectations have also risen.

Financial turmoil

The turmoil in the financial markets has continued and there is great uncertainty over economic developments in the United States and the contagion effects abroad. Recent developments in the
financial markets mean that the risk of weaker growth in the world economy has increased.

Largely unchanged interest rate path

The Riksbank has largely the same view of how the repo rate will develop in the future as in December. The repo rate needs to be raised to 4.25 per cent and the assessment is that it will remain at roughly the same level over the coming year. But there is considerable uncertainty in this assessment. Monetary policy must take into account different forces that offset one another. On the one hand, inflation and domestic cost pressures are high. On the other hand, there are risks linked to the turmoil in the international financial markets and to slower international economic activity. The future direction for monetary policy will depend on how new information on economic developments abroad and in Sweden will affect the prospects for economic activity and inflation in Sweden.

Table 1. Inflation and GDP forecasts, annual averages (see pdf-file)

Table 2. Inflation forecast, 12-month rate (see pdf-file)

Table 3. Repo rate forecast (see pdf-file)

The minutes of the Executive Board's monetary policy discussion from yesterday's meeting will be published on 25 February. The decision on the repo rate will apply from Wednesday, 20 February.
A press conference with Governor Stefan Ingves, First Deputy Governor Irma Rosenberg and Anders Vredin, Head of the Monetary Policy Department, will be held today at 11 a.m. in the Riksbank. Entry via the bank's main entrance, Brunkebergstorg 11. Press cards must be shown. The press conference will be broadcast live on the Riksbank’s website, www.riksbank.se/