Monetary Policy Update April 2009 by liwenting

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									Monetary Policy Update
April 2009

Lower repo rate necessary to subdue the fall in production and employment and to attain the inflation target of two per cent

The Riksbank will continue to take the measures required to safeguard financial stability

Repo rate cut to 0.5 per cent
 

Economic downturn worsening Low repo rate for long period of time Positive growth in 2010



Low repo rate for long period of time
Per cent, quarterly average

6
90% 75% 50% Repo rate

6

5

5

4

4

3

3

2

2

1 Note. The uncertainty interval does not take into account the zero bound.

Source: The Riksbank

1

Economic downturn worsens in Sweden
GDP, quarterly changes in per cent calculated as annual rate, seasonally-adjusted data
8 6 4 2 0 -2 -4 -6 -8 -10 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
February April

8 6 4 2 0 -2 -4 -6 -8 -10

Sources: Statistics Sweden and the Riksbank

World economy continuing to deteriorate
GDP, quarterly changes in per cent calculated as annual rate, seasonally-adjusted data
8 6 4 2 0 -2 -4 -6 -8 00 01 02 03 04 05 06 07 08 09 10 11 12
USA Euro area

8 6 4 2 0 -2 -4 -6 -8

Sources: Bureau of Economic Analysis, Eurostat and the Riksbank

Weak household consumption and retail trade sales
Annual percentage change

10 8 6 4 2 0
Note. The first quarter of 2009 refers to the average Households' consumption of retail goods Source: Statistics -2 Retail sales of outcomes in January and February.

10 8 6 4 2 0

Sweden

-2

Several years of rising unemployment
Per cent of labour force, seasonally-adjusted data
14 12 10 8 6 4 2 0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Unemployment 16-64 år Unemployment 15-74 år April February

14 12 10 8 6 4 2 0

Note. Broken lines refer to the Riksbank’s forecasts. Sources: Statistics Sweden and the Riksbank

Positive growth in 2010



  

Better functioning credit markets Low interest rates and expansionary fiscal policy Confidence will return among households and companies Households will buy more capital goods Investment will rise from a low level

Purchasing managers’ index in USA, euro area and Sweden
Index over 50 indicates growth in industry
70 65 60 55 50 45 40 35 30 00 01 02 03 04 05 06 07 08 09 10
USA Euro area Sweden

70 65 60 55 50 45 40 35 30

Sources: Institute for Supply Management, NTC Research Ltd and

Inflation kept up
Annual percentage change

5
CPI

5
CPIF

4 3 2 1 0

4

3

2

1

0

Note. Broken lines represent the Riksbank’s forecasts. Sources: Statistics Sweden and the Riksban -1 -1

Continued financial crisis
Difference between 3-month interbank rate and expected policy rate (basis spread), basis points
400 350 300 250 200 150 100 50 0
Jan/ 07 Apr/ 07 Jul/ 07 Oct/ 07 Jan/ 08 Apr/ 08 Jul/ 08 Oct/ 08 Jan/ 09 Apr/ 09 Sweden Euro area USA United Kingdom

400 350 300 250 200 150 100 50 0

Sources: Reuters EcoWin and the Riksbank

How far can the repo rate be cut?


Probably not much further







Only slight effects from further cut Possibly negative effects on functioning of financial markets Limited experience of how financial markets function when interest rates are low At present appropriate to cut repo rate to 0.5 per cent

The Riksbank has other tools


If economic activity weakens more than expected, other measures can be taken to actively support a low repo rate during a long period of time:
 



Further loans from the Riksbank Purchase of government bonds to keep down long-term interest rates Or purchase of housing bonds to influence mortgage rates

Interest rate path a forecast – not a promise
Per cent, quarterly average

6
90% 75% 50% Repo rate

6

5

5

4

4

3

3

2

2

1 Note. The uncertainty interval does not take into account the zero bound.

Source: The Riksbank

1

Repo rate cut to 0.5 per cent
 

Economic downturn worsening Low repo rate for long period of time Positive growth in 2010



Extra slides

Mortgage rates and the repo rate

7 6 5 4 3 2
Interbank rate Repo rate

7

6

5

4

3

2

1

Sources: Reutersaverages EcoWin, Statistics Sweden and the Riksbank 1 Mortgages -

Difference between mortgage rates and repo rate has declined
Percentage points

3.0
Difference between mortgage rates (5 years) and governmet bonds (5 years)

3.0

2.5
Difference between 3-monthmortgage rates and the repo rate

2.5

2.0

2.0

1.5

1.5

1.0

1.0

0.5 0.5 Note. Mortgage rates refer to average of listed rates. Sources: Reuters EcoWin and the Riksban

Large fluctuations in the CPI
Annual percentage change

5 4 3 2 1 0
April

5

4

3

2

1

0

Note. Broken lines refer to the Riksbank’s forecasts. Sources: Statistics Sweden and the Riksban -1 -1

Long-term interest rates in Sweden, euro area and USA
Per cent

6.0

6.0

5.0

5.0

4.0

4.0

3.0

3.0

2.0
Sweden Euro area (Germany)

2.0

1.0 Note. Treasury bonds with remaining maturity of approx. 10 USA years.

Source: Reuters EcoWin 1.0

Central bankers’ balance sheets
Per cent of GDP
25
ECB BOE

25

20

Federal Reserve The Riksbank

20

15

15

10

10

5

5

0 Jan/ 07 Apr/ 07 Jul/ 07 Oct/ 07 Jan/ 08 Apr/ 08 Jul/ 08 Oct/ 08 Jan/ 09 Apr/ 09

0

Source: Respective central banks

The Riksbank’s measures to facilitate the supply of credit


SEK loans
  

Outstanding amount SEK 155.50 billion USD loans Outstanding amount USD 30 billion USD (corresponds to approx. SEK 246 billion)

 

Loans with commercial paper as collateral


Outstanding amount SEK 1 billion

More generous collateral requirements for loans



More counterparties

Estimated gap
Percentage deviation from HP trend

6
GDP

6
Hours worked Employment

5 4 3 2 1 0 -1 -2 -3

5

4

3

2

1

0

-1

-2

Note. Broken lines refer to the Riksbank’s forecasts.

Sources: Statistics Sweden and the

-3

Real repo rate
Per cent, quarterly average

4
April February

4

3 2 1 0 -1

3

2

1

0

-1

Note. Broken lines-2 refer to the Riksbank’s forecasts.

Source: The Riksbank

-2

Competition-weighted exchange rate, TCW
Index, 18 November 1992 = 100
160
April

160
February

155 150 145 140 135 130 125 120 01

155 150 145 140 135 130 125 120

02

03

04

05

06

07

08

09

10

11

12

Note. Outcomes up to 15 April 2009. Broken lines refer to Riksbank’s forecasts. Source: The Riksbank

Unit labour costs
Annual percentage change

7 6 5 4 3 2 1 0

7

6

5

4

3

2

1

0

Labour costs per hour Sources: Statistics Sweden and the Riksbank ote. Broken lines and columns refer to the Riksbank’s forecasts.


								
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