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Monetary Policy Update April 2009

The Riksbank will continue to take measures to safeguard financial stability and attain the inflation target of 2%. GDP and household consumption in Sweden are worsening due to the economic downturn. However, positive growth is expected in 2010. The repo rate will be cut to 0.5% to support economic recovery.

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Monetary Policy Update April 2009

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  1. Monetary Policy UpdateApril 2009

  2. 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

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

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

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

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

  7. 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

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

  9. 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

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

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

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

  13. 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

  14. 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

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

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

  17. Extra slides

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

  19. Difference between mortgage rates and repo rate has declinedPercentage points Note. Mortgage rates refer to average of listed rates. Sources: Reuters EcoWin and the Riksbank

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

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

  22. Central bankers’ balance sheetsPer cent of GDP Source: Respective central banks

  23. The Riksbank’s measures to facilitate the supply of credit • SEK loans • Outstanding amount SEK 155.50 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

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

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

  26. Competition-weighted exchange rate, TCWIndex, 18 November 1992 = 100 Source: The Riksbank Note. Outcomes up to 15 April 2009. Broken lines refer to Riksbank’s forecasts.

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

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