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Monetary Policy Report February 2009

This report discusses the major deterioration in economic activity in February 2009 and the necessary measures taken by the Riksbank to promote financial stability. It also emphasizes the need for lower interest rates to dampen the fall in production and employment and reach the inflation target of two percent.

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Monetary Policy Report February 2009

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  1. Monetary Policy Report February 2009

  2. Major deterioration in economic activity – repo rate cut to 1 per cent Recovery will begin in 2010 High degree of uncertainty

  3. Lower interest rate necessary to dampen the fall in production and employment and to reach the inflation target of two per cent The Riksbank will continue to take the measures required to promote financial stability

  4. Substantial lowering of the repo rate path • Major deterioration in economic activity • Cost pressures declining • Still major problems on the financial markets • High degree of uncertainty

  5. Recovery will begin in 2010 • The measures taken will have an impact • Credit markets will function better • Confidence will return to households and companies • Consumption and investments increase

  6. Repo rate a forecast – not a promisePer cent, quarterly averages Source: The Riksbank Note: Broken line is the Riksbank’s forecast

  7. Consensus forecasts for GDP development 2009 revised downwardsAnnual percentage change Source: Consensus

  8. Major fall in orders and exportsAnnual percentage change, seasonally-adjusted data Note: 3-month moving average, exported goods in fixed prices calculated by the Riksbank. Sources: Statistics Sweden and the Riksbank

  9. Higher unemploymentPercentage of labour force, seasonally adjusted data Note: Broken line is the Riksbank’s forecast. Sources: Statistics Sweden and the Riksbank

  10. Forecast for GDP growth in Sweden and abroadQuarterly percentage change converted to annual rate, seasonally adjusted data Sources: National sources and the Riksbank

  11. Comparison of recovery following previous recessions, GDP SwedenLevel, index=100 quarter preceding the beginning of the recession Note: Broken line is the Riksbank’s forecast. Legends refer to quarters when recessions began. Sources: Statistics Sweden and the Riksbank

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

  13. Inflation expectations in line with target a few years aheadAnnual percentage change Note: Broken line is the Riksbank’s forecast. Sources: NIER, Prospera Research AB, Statistics Sweden and the Riksbank

  14. Recovery will begin in 2010 • The measures taken will have an impact • Credit markets will function better • Confidence will return to households and companies • Consumption and investments increase

  15. Uncertainty in the forecasts • The crisis worsens – the interest rate is cut to zero per cent • Quicker recovery • Weaker exchange rate and lower growth in productivity generates higher cost pressures

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

  17. Central banks’ balance sheets growingPercentage of GDP

  18. The Riksbank’s measures • Loans (against collateral) in SEK and USD • Changed collateral requirements • Special liquidity assistance • Corporate paper • Further measures may be needed

  19. The repo rate a forecast – not a promisePer cent, quarterly averages Source: The Riksbank Note: Broken line is the Riksbank’s forecast

  20. Lower interest rate necessary to dampen the fall in production and employment and to reach the inflation target of two per cent The Riksbank will continue to take the measures required to promote financial stability

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