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Monetary Policy
Report
July 2009

Deep economic downturn


Repo rate cut to 0.25 per cent
Low repo rate over a long time

Inflation close to target

Signs of a turnaround

Positive growth in 2010
Low repo rate over a long period of
time
Per cent, quarterly average
7
7
90%
75%
50%
Repo rate
6
5
6
5
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
04
05
06
07
08
09
Note. Uncertainty bands calculated using historical forecasting errors.
10
11
12
Source: The Riksbank
Deep economic downturn
GDP in Sweden, annual percentage change
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Note. GDP at recipient prices prior to 1951 from Edvinsson (2005).
Sources: Statistics Sweden and the Riksbank
Low resource utilisation during entire
forecast period
Unemployment, per cent of labour force, seasonally-adjusted data
14
14
12
12
10
10
8
8
6
6
4
4
Unemployment 16-64 years-old
Unemployment 15-74 years-old
2
2
July
0
0
80
82
84
86
88
90
92
Note. Broken lines refer to the Riksbank’s forecasts.
94
96
98
00
02
04
06
08
10
12
Sources: Statistics Sweden and the Riksba
Signs of a turnaround
Purchasing managers’ index, index above 50 indicates growth in industry
70
70
USA
Euro area
Sweden
65
65
60
60
55
55
50
50
45
45
40
40
35
35
30
30
00
01
02
03
04
Note. Yellow dot refers to outcomes that wereSources:
not available at the monetary policy meeting.
05
06
07
08
09
10
Institute for Supply Management, NTC Research Ltd and Swedbank
Financial markets functioning better
Basis spread, basis points
400
400
Sweden
350
300
350
Euro area
USA
300
United Kingdom
250
250
200
200
150
150
100
100
50
50
0
0
jan-07
apr-07
jul-07
okt-07
jan-08
apr-08
jul-08
okt-08
jan-09
apr-09
jul-09
ote. Difference between 3-month interbank rate and expected policy rate (basis spread) Sources: Reuters EcoWin and the
Riksbank
GDP growth will accelerate in 2010
Quarterly changes in per cent calculated as an annual rate
10
10
5
5
0
0
-5
-5
-10
-10
Sweden
-15
-15
USA
Euro area
-20
-20
00
01
02
03
04
05
06
07
08
09
10
11
12
Sources: Bureau of Economic Analysis, Eurostat, OECD, Statistics Sweden and the Riksbank
Inflation close to the target
Annual percentage change
5
5
CPI
CPIF
4
4
CPIF excluding energy
3
3
2
2
1
1
0
0
-1
-1
-2
-2
00
01
02
03
04
05
Note. Broken lines refer to the Riksbank’s forecasts.
06
07
08
09
10
11
12
Sources: Statistics Sweden and the Riksban
Uncertainty in the forecast

Interest rate could become higher…



Weaker productivity
Faster recovery abroad
…or lower


Higher loan losses
Lower rate of wage increase
Lending at a fixed interest rate

The repo rate has in practice reached its lower
limit
 The situation in the financial markets is still not
completely normal

Lending with a fixed interest rate increases
scope for monetary policy to have the intended
effect
 Contributes to lower interest rates for companies
and households
Repo rate path a forecast – not a
promise
Per cent, quarterly average
7
7
90%
75%
50%
Repo rate
6
5
6
5
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
04
05
06
07
08
09
Note. Uncertainty bands calculated using historical forecasting errors.
10
11
12
Source: The Riksbank

Deep economic downturn


Repo rate cut to 0.25 per cent
Low repo rate over a long period of time

Inflation close to the target

Signs of a turnaround

Positive growth in 2010