Riksbank Governor Stefan Ingves Introduction on monetary policy Riksdag Committee on Finance 23 February 2012

Today’s presentation Background Recent developments and monetary policy Current monetary policy

Strong recovery from financial crisis in 2010 and 2011 GDP growth in Sweden and the world Background Note. Annual percentage change, calendar-adjusted data. Broken column and line refer to the Riksbank’s forecast in February Sources: The IMF, Statistics Sweden and the Riksbank

Large differences between regions GDP growth in 2010 and2011 in different regions and countries Background Sources: Bureau of Economic Analysis, Eurostat, IMF, Statistics Sweden and the Riksbank Note. Annual percentage change refers to the Riksbank’s forecast in February 2012

Poorer outlook in second half of 2011 We have for some time been expecting lower growth after 2010 and 2011 The question was how large the decline would be Clear signs in autumn 2011 – the decline will be much greater than expected Background

Debt crisis in Europe marked the autumn… Government bond yields in Sweden and countries in the euro area Background Note. 10-year maturity, per cent Source: Reuters EcoWin

…which affected Sweden National Institute of Economic Research’s economic tendency survey Background Source: National Institute of Economic ResearchNote. Index, average = 100, standardavvikelse = 10

Pause in policy rate increases followed by cut in December Policy rates Background Source: Reuters EcoWinNote. Per cent

Weaker export at the end of last year… Goods exports Current monetary policy – present status Note. Index, 2005 = 100, fixed prices, seasonally-adjusted data Three-month moving average. Fixed prices calculated by the Riksbank. Sources: Statistics Sweden and the Riksbank

…but more positive on financial markets recently Stock markets Note. Index, 3 January 2006 = 100.Source: Reuters EcoWin Current monetary policy – present status

Good global growth, but weak in the euro area GDP growth in different parts of the world Note. Annual percentage change.Sources: Bureau of Economic Analysis, Eurostat, the IMF and the Riksbank Current monetary policy – the forecast

Swedish exports slow down, despite new markets Percentage of Sweden’s total goods exports Source: Statistics SwedenNote. Per cent. Figures for 2011 refer to average up to November. Percentages do not total 100 per cent as not all countries are reported. Current monetary policy – the forecast

Poorer future prospects dampen willingness to consume The confidence indicator and household consumption Note. Net figures (confidence indicator) and annual percentage change respectively (household consumption) Current monetary policy – the forecast Sources: National Institute of Economic Research, Statistics Sweden and the Riksbank

Weak growth this year – recovery takes time GDP Sources: Statistics Sweden and the RiksbankNote. Annual percentage change, calendar-adjusted data Current monetary policy – the forecast

Labour market will deteriorate before improving Unemployment Sources: Statistics Sweden and the Riksbank Current monetary policy – the forecast Note. Per cent of labour force, seasonally-adjusted data

Balanced wage increases Wages according to short-term wage statistics Note. Annual percentage change. For 2011 the outcomes refer to estimated values on the basis of preliminary outcomes and historical revisions. Current monetary policy – the forecast Sources: The National Mediation Office and the Riksbank

Stronger krona Currency-weighted exchange rate Current monetary policy – the forecast Note. TCW index, 18 November 1992 = 100Source: The Riksbank

Continuing low inflationary pressure Inflation measured according to the CPI and the CPIF Note. Annual percentage changeSources: Statistics Sweden and the Riksbank Current monetary policy – the forecast

Low repo rate to attain inflation target Repo rate Note. Per cent, quarterly averages Source: The Riksbank Current monetary policy – the repo rate

”It is very difficult to make predictions, especially about the future.” Niels Bohr Current monetary policy – alternative outcome

Consequences of alternative outcomes, examples Repo rate Current monetary policy – alternative outcome Per cent, quarterly averagesSource: The Riksbank

A forecast, not a promise Repo rate Note. Per cent, quarterly averagesSource: The Riksbank Current monetary policy – summary

Many interest rates important in the economy Repo rate, mortgage rates to households and bank lending rates to companies Current monetary policy – repo rate and other interest rates Note. Per cent. Rates to households and companies refer to new agreements. Variable mortgage rate refers to fixed terms of up to 3 months. Long fixed mortgage rate refers to fixed periods of between 1 and 5 years. Sources: Statistics Sweden and the Riksbank

Changes in the repo rate affect interest rates in general Repo rate and average of mortgage rates to households and bank lending rates to companies Current monetary policy – repo rate and other interest rates Sources: Statistics Sweden and the Riksbank Note. Per cent. In the blue line, households’ average rate is weighted with the percentage of loans to households, and companies’ average interest rate is weighted with the percentage of loans to companies. Rates refer to new agreements.