Excerpts from the Statement by the Executive Board of the Riksbank:
For some time, the Riksbank has held the view that economic activity in Sweden would peak in 2018 and thereafter slow down. Compared with the forecast in the Monetary Policy Report in July, GDP growth is expected to be a little lower and the slowdown on the labour market seems to be taking place slightly faster than previously assessed. However, economic activity is still strong. Since the beginning of 2017, inflation has been close to the target of 2 per cent and the latest inflation outcomes have, if anything, been slightly higher than expected.
The fact that developments have largely been in line with the Riksbank’s forecast argues in favour of keeping, at present, to the previously communicated direction of monetary policy over the next six months. In line with the forecast in July, the repo rate is therefore being held unchanged at −0.25 per cent and, as before, the forecast indicates that the interest rate will be raised towards the end of the year or at the start of next year. However, market rates have fallen substantially and global interest rates are expected to remain low for a longer period of time. Together with the worsened sentiment, this underlines the importance of proceeding cautiously with monetary policy. The economic prospects are based on the repo rate being raised at a slower rate in the period ahead than in the previous forecast. In accordance with the decision from April 2019, the Riksbank will purchase government bonds for a nominal total amount of SEK 45 billion, with effect from July 2019 to December 2020. The low level of interest rates will continue to give support to the economic outlook and inflation.
There are still major risks that may affect economic developments. The forecasts consider that sentiment has deteriorated but assume that there will not be any further significant downturns in confidence among households and companies abroad and in Sweden. If the economic outlook and inflation prospects were to change, monetary policy will be adjusted.
Swedish households are highly indebted and therefore sensitive to changes in economic conditions, such as rising interest rates or higher unemployment. In order to reduce the risks linked to household indebtedness and address the structural problems on the Swedish housing market, measures within housing and tax policy and appropriate macroprudential policy are required.