The Riksbank: Expansionary monetary policy to keep inflation close to target

The Riksbank: Expansionary monetary policy to keep inflation close to target

The Riksbank’s Monetary Policy Report for October was published on 26 October, 2017.  Economic activity is strong and inflation was 2.3% in September –  close to the target of 2%.  Part of the upturn in inflation in recent months is explained by temporary factors and inflation is expected to fall back slightly in the period ahead. The Riksbank states that monetary policy needs to remain expansionary for inflation to stay close to 2% and has therefore decided to hold the repo rate unchanged at −0.50%. The central bank is expecting not to raise it until the middle of 2018. 

The Riksbank’s monetary policy has contributed to economic activity in Sweden being strong; the employment rate is historically high and inflation has risen.  Above all, prices for services have increased rapidly, which reflects the way in which the strong economic activity is having a greater impact on the rate of price increases.  During 2Q, GDP growth in Sweden amounted to 5.2%. Both domestic demand and exports are showing strength. Indicators also point to continued good growth in the coming quarters. Growth will slow down to just under 3% this year and next year to about 2% in 2020. The slowdown towards the end of the forecast period is due to the slowing of growth on Sweden’s export markets and a slight decrease in housing investment in Sweden. At the same time, the working age population is growing at a slower rate, which, together with difficulties in finding suitable staff, is contributing to a decrease in  the growth in hours worked.

Meanwhile, international recovery is continuing and global trade is increasing at a good pace, writes the Riksbank, Although  political and economic uncertainty remain abroad, the mood is good among both households and companies in many countries.  The weak economic developments in  the euro area in the wake of the debt crisis have long slowed down Swedish exports. However, economic activity in the euro area has improved significantly recently. 

Photo: Riksbanken

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