Excerpts from the Statement by the Executive Board of the Riksbank:
The trend of rising inflation is expected to continue. But compared with the assessment at the previous monetary policy meeting, the inflation forecast has been revised down slightly. This depends on poorer inflation prospects abroad as well as on a new assessment that demand needs to be stronger in Sweden in order to stabilise inflation around 2 per cent.
The recovery abroad is continuing but there is uncertainty regarding the strength of the global economy. Compared with previous forecasts, inflation abroad is deemed to be slightly lower and many central banks are expected to pursue an expansionary monetary policy for a longer time. International interest rates are therefore expected to remain very low. Swedish monetary policy needs to take this into consideration. Otherwise the krona risks strengthening earlier and more rapidly than forecast, which would lead to a slower increase in the prices of imported goods and services and lower demand for Swedish exports. This would make it more difficult for the Riksbank to push up inflation and stabilise it around the target.
Overall, the Executive Board's assessment is that monetary policy needs to be more expansionary in order to underpin the positive development in the Swedish economy and safeguard the robustness of the upturn in inflation. The Executive Board has therefore decided to extend the government bond purchasing programme by an additional SEK 65 billion so that purchases will amount to SEK 200 billion in total by the end of June 2016. The repo rate is left unchanged at −0.35 per cent but an initial raise in the rate will be deferred by approximately six months compared with the previous assessment.
It is important that inflation rises and stabilises around 2 per cent. This contributes to long-term inflation expectations that are compatible with the inflation target. The Riksbank still has a high level of preparedness to quickly make monetary policy even more expansionary if the inflation prospects deteriorate, even between the ordinary monetary policy meetings. The repo rate can be cut further, which is reflected in the repo rate path, and the Riksbank can purchase more securities. The Riksbank is also ready to intervene on the foreign exchange market if the upturn in inflation should be threatened as the result of a problematic market development. Moreover, the Riksbank is prepared to launch a programme of lending to companies via the banks.