Monetary Policy Update April 2009

Lower repo rate necessary to subdue the fall in production and employment and to attain the inflation target of two per cent The Riksbank will continue to take the measures required to safeguard financial stability

Repo rate cut to 0.5 per cent Economic downturn worsening Low repo rate for long period of time Positive growth in 2010

Low repo rate for long period of time Per cent, quarterly average Source: The Riksbank Note. The uncertainty interval does not take into account the zero bound.

Economic downturn worsens in Sweden GDP, quarterly changes in per cent calculated as annual rate, seasonally-adjusted data Sources: Statistics Sweden and the Riksbank

World economy continuing to deteriorate GDP, quarterly changes in per cent calculated as annual rate, seasonally-adjusted data Sources: Bureau of Economic Analysis, Eurostat and the Riksbank

Weak household consumption and retail trade sales Annual percentage change Note. The first quarter of 2009 refers to the average of outcomes in January and February. Source: Statistics Sweden

Several years of rising unemployment Per cent of labour force, seasonally-adjusted data Note. Broken lines refer to the Riksbank’s forecasts. Sources: Statistics Sweden and the Riksbank

Positive growth in 2010 Better functioning credit markets Low interest rates and expansionary fiscal policy Confidence will return among households and companies Households will buy more capital goods Investment will rise from a low level

Purchasing managers’ index in USA, euro area and Sweden Index over 50 indicates growth in industry Sources: Institute for Supply Management, NTC Research Ltd and Swedbank

Inflation kept up Annual percentage change Note. Broken lines represent the Riksbank’s forecasts.Sources: Statistics Sweden and the Riksbank

Continued financial crisis Difference between 3-month interbank rate and expected policy rate (basis spread), basis points Sources: Reuters EcoWin and the Riksbank

How far can the repo rate be cut? Probably not much further Only slight effects from further cut Possibly negative effects on functioning of financial markets Limited experience of how financial markets function when interest rates are low At present appropriate to cut repo rate to 0.5 per cent

The Riksbank has other tools If economic activity weakens more than expected, other measures can be taken to actively support a low repo rate during a long period of time: Further loans from the Riksbank Purchase of government bonds to keep down long-term interest rates Or purchase of housing bonds to influence mortgage rates

Interest rate path a forecast – not a promise Per cent, quarterly average Source: The Riksbank Note. The uncertainty interval does not take into account the zero bound.

Repo rate cut to 0.5 per cent Economic downturn worsening Low repo rate for long period of time Positive growth in 2010

Extra slides

Mortgage rates and the repo rate Sources: Reuters EcoWin, Statistics Sweden and the Riksbank

Difference between mortgage rates and repo rate has declined Percentage points Sources: Reuters EcoWin and the RiksbankNote. Mortgage rates refer to average of listed rates.

Large fluctuations in the CPI Annual percentage change Note. Broken lines refer to the Riksbank’s forecasts.Sources: Statistics Sweden and the Riksbank

Long-term interest rates in Sweden, euro area and USA Per cent Note. Treasury bonds with remaining maturity of approx. 10 years. Source: Reuters EcoWin

Central bankers’ balance sheets Per cent of GDP Source: Respective central banks

The Riksbank’s measures to facilitate the supply of credit SEK loans Outstanding amount SEK billion USD loans Outstanding amount USD 30 billion USD (corresponds to approx. SEK 246 billion) Loans with commercial paper as collateral Outstanding amount SEK 1 billion More generous collateral requirements for loans More counterparties

Estimated gap Percentage deviation from HP trend Note. Broken lines refer to the Riksbank’s forecasts.Sources: Statistics Sweden and the Riksbank

Real repo rate Per cent, quarterly average Note. Broken lines refer to the Riksbank’s forecasts. Source: The Riksbank

Competition-weighted exchange rate, TCW Index, 18 November 1992 = 100 Note. Outcomes up to 15 April Broken lines refer to Riksbank’s forecasts. Source: The Riksbank

Unit labour costs Annual percentage change Note. Broken lines and columns refer to the Riksbank’s forecasts.Sources: Statistics Sweden and the Riksbank