Excerpt from the statement by the Executive Board of the Riksbank:
Economic activity is developing largely as the Riksbank had forecast earlier. However, inflation has been unexpectedly low and, despite the recovery, inflationary pressures over the coming year are expected to be much lower than in the most recent forecast in October. To contribute to inflation rising towards 2 per cent, the Executive Board of the Riksbank has decided to cut the repo rate by 0.25 percentage points, to 0.75 per cent, and to make a downward adjustment in the repo-rate path for the entire forecast period. Slow increases in the repo rate are not expected to begin until the start of 2015. The risks linked to high household indebtedness remain, but the low inflation rate justifies cutting the repo rate.
Economic developments in Sweden and abroad have been largely in line with the Riksbank's forecasts. The slow recovery in the euro area is continuing and growth in the United States is on increasingly firm ground. However, at the same time, inflation abroad has fallen in recent months and been lower than expected.
Inflation has recently been unexpectedly low, with weak developments in prices of goods and services. At the same time, domestic cost pressures have been higher than inflation. This indicates that companies have had difficulty in passing on their higher costs through higher prices, which in turn may be due to weak demand. Compared with the most recent assessment in October, inflation is now expected to be much lower over the coming year.
The Riksbank's expansionary monetary policy will contribute to an increase in resource utilisation in the economy. Wages are then expected to rise at a faster pace, at the same time as companies can gradually raise their prices. As global economic activity improves, import prices will also increase. CPIF inflation is thus expected to rise to 2 per cent in 2015.