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Monetary Policy Update December 2008

Rapid weakening of economic activity prompts an unusually large repo rate cut to dampen the fall in production and employment and meet the inflation target. Economic prospects weakening rapidly, inflation falling below target. Recovery expected to begin in 2010.

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Monetary Policy Update December 2008

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  1. Monetary Policy Update December 2008

  2. Repo rate cut to 2 per cent • Repo rate expected to remain at same level during 2009 • A large interest rate cut is necessary to dampen the fall in production and employment and meet the inflation target of two per cent

  3. Repo rate cut • Economic prospects weakening rapidly • Inflation falling below target • Unusually rapid economic downturn requires unusually large and rapid monetary policy measures • Growth will recover in 2010

  4. Economic activity weakening rapidlyPurchasing managers index, manufacturing industry, index = 50 means unchanged activity Note. Vertical line at September. Source: EcoWin

  5. Retail trade sales fallingAnnual percentage change Note. Vertical line at September. Seasonally-adjusted data. Source: EcoWin

  6. Rapid weakening of labour marketRedundancy notices and job vacancies, seasonally-adjusted data, thousands Note. Refers to preliminary outcomes for November Source: Swedish Employment Service

  7. Rapid weakening of labour marketRedundancy notices and job vacancies, seasonally-adjusted data, thousands Source: Swedish Employment Service Note. Refers to preliminary outcomes for November

  8. GDP slowing down globallyAnnual percentage change, calendar-adjusted data Sources: the IMF, Statistics Sweden and the Riksbank Note. Broken lines and columns refer to the Riksbank’s forecasts.

  9. GDP forecast for Sweden adjusted downwardsQuarterly growth calculated as an annual rate, seasonally-adjusted data Sources: Statistics Sweden and the Riksbank Note. Broken lines refer to the Riksbank’s forecasts

  10. Unemployment rising rapidlyPercentage of labour force, seasonally-adjusted data Note. Broken lines refer to the Riksbank’s forecasts, 15-74 years. Data prior to 1993 is spliced by the Riksbank Sources: Statistics Sweden and the Riksbank

  11. Lower oil price pushes down inflationBrent crude oil, USD per barrel Sources: Intercontinental Exchange and the Riksbank

  12. Drastic weakening of the kronaTCW index 18 November 1992=100 Note. Outcomes are daily rates up to 1 December 2008 and the forecasts refer to quarterly averages. Broken lines refer to the Riksbank’s forecasts. Source: The Riksbank

  13. Inflation below the targetCPI, annual percentage change Sources: Statistics Sweden and the Riksbank

  14. Large difference between repo rate and market ratesPer cent Sources: Reuters EcoWin, Statistics Sweden and the Riksbank

  15. Unusually large cut • New information, analyses and assessments indicate that the repo rate should be as low as around 2 per cent • Rapid weakening in economic activity • Increased pessimism among companies and households • Reduced impact of monetary policy • The risks in acting too forcefully are less than the risks in ”waiting and seeing”

  16. Measures for the financial system • Loans (against collateral) in SEK and USD • Changed collateral requirements • Liquidity support to Kaupthing and Carnegie • Commercial paper

  17. Recovery will begin in 2010 • Restored confidence in the banking system • Reduced insecurity • Increased demand from abroad • Weaker krona • Expansionary fiscal and monetary policy

  18. Repo rate a forecast – not a promisePer cent, quarterly average Diagram Source: The Riksbank Note. Broken lines refer to the Riksbank’s forecasts

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