Monetary Policy Update April Rate

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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                                                                              6
                     90%
                     75%
            5        50%                                                                   5
                     Repo rate


            4                                                                              4


            3                                                                              3


            2                                                                              2


            1                                                                              1


            0                                                                              0
                04    05         06     07      08       09       10         11    12



Note. The uncertainty interval does not take into account the zero bound.   Source: The Riksbank
Economic downturn worsens in
Sweden
GDP, quarterly changes in per cent calculated as annual rate,
seasonally-adjusted data

     8                                                          8

     6                                                          6

     4                                                          4

     2                                                          2

     0                                                          0

     -2                                                         -2

     -4                                                         -4

     -6                                                         -6

     -8        February                                         -8
               April
    -10                                                         -10
          80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12



                              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                                                                       8

     6                                                                       6

     4                                                                       4

     2                                                                       2

     0                                                                       0

    -2                                                                       -2

                        USA
    -4                                                                       -4
                        Euro area
    -6                                                                       -6

    -8                                                                       -8
         00   01   02     03    04   05   06   07   08   09   10   11   12



              Sources: Bureau of Economic Analysis, Eurostat and the Riksbank
Weak household consumption and
retail trade sales
Annual percentage change

       10                                                                                             10


        8                                                                                             8


        6                                                                                             6


        4                                                                                             4


        2                                                                                             2


        0                                                                                             0

                                       Households' consumption of retail goods
       -2                              Retail sales                                                   -2
                                       Households' total consumption
       -4                                                                                             -4
            94   95   96    97   98    99    00    01   02   03   04    05   06   07   08   09   10


Note. The first quarter of 2009 refers to the average
of outcomes in January and February.
                                                                       Source: Statistics Sweden
     Several years of rising
     unemployment
     Per cent of labour force, seasonally-adjusted data

           14                                                                                         14
                          Unemployment 16-64 år
                          Unemployment 15-74 år
           12                                                                                         12
                          April
                          February
           10                                                                                         10


            8                                                                                         8


            6                                                                                         6


            4                                                                                         4


            2                                                                                         2


            0                                                                                         0
                80   82    84   86   88   90   92   94   96   98   00   02   04   06   08   10   12


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                                                                        70
                      USA
    65                Euro area                                               65
                      Sweden
    60                                                                        60

    55                                                                        55

    50                                                                        50

    45                                                                        45

    40                                                                        40

    35                                                                        35

    30                                                                        30
         00     01    02          03   04   05   06   07    08    09     10



              Sources: Institute for Supply Management, NTC Research Ltd and
     Inflation kept up
     Annual percentage change

           5                                                                       5
                     CPI
                     CPIF
           4                                                                       4


           3                                                                       3


           2                                                                       2


           1                                                                       1


           0                                                                       0


           -1                                                                      -1


           -2                                                                      -2
                00   01     02   03   04   05   06   07   08   09   10   11   12



Note. Broken lines represent the Riksbank’s forecasts.
                                                  Sources: Statistics Sweden and the Riksban
Continued financial crisis
Difference between 3-month interbank rate and expected
policy rate (basis spread), basis points

    400                                                                                    400
               Sweden
               Euro area
    350                                                                                    350
               USA
               United Kingdom
    300                                                                                    300

    250                                                                                    250

    200                                                                                    200

    150                                                                                    150

    100                                                                                    100

    50                                                                                     50

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



                                           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                                                                                6
                     90%
                     75%
          5          50%                                                                   5
                     Repo rate


          4                                                                                4


          3                                                                                3


          2                                                                                2


          1                                                                                1


          0                                                                                0
              04      05         06     07        08        09       10     11     12



Note. The uncertainty interval does not take into account the zero bound.   Source: The Riksbank
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                                                                                                        7


  6                                                                                                        6


  5                                                                                                        5


  4                                                                                                        4


  3                                                                                                        3


  2                                                                                                        2
                      Interbank rate
                      Repo rate
  1                   Mortgages - averages                                                                 1
                      Mortgages - interest rate according to financial market statistics

  0                                                                                                        0
  jan/ 07   apr/ 07   jul/ 07     okt/ 07   jan/ 08   apr/ 08    jul/ 08    okt/ 08    jan/ 09   apr/ 09



                      Sources: Reuters EcoWin, Statistics Sweden and the Riksbank
      Difference between mortgage
      rates and repo rate has declined
      Percentage points
           3.0                                                                                        3.0

                     Difference between mortgage rates (5 years) and governmet bonds (5 years)
           2.5                                                                                        2.5
                     Difference between 3-monthmortgage rates and the repo rate


           2.0                                                                                        2.0


           1.5                                                                                        1.5


           1.0                                                                                        1.0


           0.5                                                                                        0.5


           0.0                                                                                        0.0
            Jan/ 04 Jul/ 04 Jan/ 05 Jul/ 05 Jan/ 06 Jul/ 06 Jan/ 07 Jul/ 07 Jan/ 08 Jul/ 08 Jan/ 09



Note. Mortgage rates refer to average of listed rates. Sources: Reuters EcoWin and the Riksban
     Large fluctuations in the
     CPI
     Annual percentage change
           5                                                                           5


           4                                                                           4


           3                                                                           3


           2                                                                           2


           1                                                                           1


           0                                                                           0

                               April
           -1                                                                          -1
                               February

           -2                                                                          -2
                00   01   02      03      04   05   06   07   08   09   10   11   12



Note. Broken lines refer to the Riksbank’s forecasts.
                                                    Sources: Statistics Sweden and the Riksban
       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                                                                    2.0
                                              Sweden
                                              Euro area (Germany)
           1.0                                                                    1.0
                                              USA


           0.0                                                                    0.0
                 04      05        06         07          08        09       10



Note. Treasury bonds with remaining maturity of approx. 10 years. Source: Reuters EcoWin
Central bankers’ balance sheets
Per cent of GDP
   25                                                                                25
            ECB
            BOE
   20                                                                                20
            Federal Reserve
            The Riksbank

   15                                                                                15



   10                                                                                10



   5                                                                                 5



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


                                                     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                                                                           6
                                              GDP
             5                                Hours worked                               5
                                              Employment
             4                                                                           4

             3                                                                           3
             2                                                                           2
             1                                                                           1
             0                                                                           0
            -1                                                                           -1
            -2                                                                           -2

            -3                                                                           -3
            -4                                                                           -4
            -5                                                                           -5
                 80     85         90        95              00        05        10



Note. Broken lines refer to the Riksbank’s forecasts.        Sources: Statistics Sweden and the
   Real repo rate
   Per cent, quarterly average
        4                                                                         4
                  April
                  February
        3                                                                         3


        2                                                                         2


        1                                                                         1


        0                                                                         0


        -1                                                                        -1


        -2                                                                        -2


        -3                                                                        -3
             04   05         06    07       08          09   10      11      12



Note. Broken lines refer to the Riksbank’s forecasts.             Source: The Riksbank
      Competition-weighted exchange
      rate, TCW
      Index, 18 November 1992 = 100
           160                                                                           160
                       April
           155         February                                                          155

           150                                                                           150

           145                                                                           145

           140                                                                           140

           135                                                                           135

           130                                                                           130

           125                                                                           125

           120                                                                           120
                 01   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                                                                               7

              6                                                                               6

              5                                                                               5

              4                                                                               4

              3                                                                               3

              2                                                                               2

              1                                                                               1

              0                                                                               0
                               Labour costs per hour
             -1                Productivity                                                   -1
                               Unit labour costs
             -2                                                                               -2
                  94      96       98        00        02   04      06      08       10



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

				
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