Riksbank, Stefan Ingves, commercial paper, sole proprietors

SVERIGES RIKSBANK : Account of monetary policy in 2019 – return to more normal economic activity and zero interest rate

In December the Riksbank raised the repo rate from –0.25 to zero per cent, leaving behind the negative interest rate and could note that the expansionary monetary policy with a negative interest rate and asset purchases had contributed to Sweden experiencing a good economic development in recent years. This is one of the conclusions in the Account of monetary policy in 2019 and in the Review of the Riksbank’s forecasts, both of which provide background information for the Riksdag Committee on Finance’s annual evaluation of monetary policy.

Monetary policy continued to be expansionary in 2019 – the repo rate was low and the Riksbank’s holdings of government bonds were substantial. The trade conflict between the United States and China, as well as the United Kingdom’s withdrawal from the EU, created uncertainty over international economic developments, and this affected the financial markets and worsened sentiment in the manufacturing sector. Several central banks around the world made their monetary policies more expansionary, which contributed to a stabilisation in economic activity.

In Sweden, the economy moved from a strong to a more normal economic situation. The Riksbank’s forecast at the beginning of 2019 indicated that it would be appropriate to raise the repo rate during the second half of the year, on condition that the economic outlook and inflation prospects turned out as expected. When interest rates abroad subsequently fell, the forecast for the repo rate over the longer term was revised downwards. Although inflation fell somewhat in 2019, to 1.7 per cent, the underlying inflation rate was maintained well. Developments over the autumn thus largely followed the Riksbank’s assessment and, in December, the Riksbank carried out the announced repo rate rise from –0.25 to zero per cent. The forecast indicated that the repo rate was expected to remain at zero per cent in the coming years.

The Riksbank’s forecasts hold up well in comparison with others, except with regard to the repo rate

Over the period 2010−2019, the Riksbank had the highest accuracy, in relation to other analysts, in forecasts for GDP growth and unemployment. The accuracy of the Riksbank’s forecasts for CPIF inflation was in line with the average, while the forecasts for the repo rate were the least accurate.

In the forecasts made during 2018 and 2019, the Riksbank overestimated Swedish GDP growth, inflation and the repo rate, and underestimated unemployment. Compared with others, the Riksbank made more accurate forecasts for unemployment in 2019 and less accurate forecasts for inflation and the repo rate. However, the difference between different forecasters is generally small.

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