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Sales of government bonds continuing | 23/11/2023 | Nov-23 | par_title | null | null | null | hawkish |
As a supplement to the policy rate increases, and a step towards normalising the Riksbank's balance sheet, the Riksbank is continuing to sell government bonds in accordance with the decision from June. | 23/11/2023 | Nov-23 | par_body | null | null | null | hawkish |
An increased volume of safe and easily tradeable assets on the Swedish market can make it easier for foreign agents to invest in Swedish assets and also improve the functionality of the financial markets. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
Altogether, this may contribute to a stronger krona and improve the Riksbank’s capacity to reduce inflation. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
The sales have so far functioned well, with high demand from market participants. | 23/11/2023 | Nov-23 | par_body | null | null | null | positive |
Swedish government bond yields at the same time remain low in relation to the expected policy rate. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
Given this, the Riksbank is considering further increasing the pace of the sales. | 23/11/2023 | Nov-23 | par_body | null | null | null | hawkish |
A decision on this could be made at the monetary policy meeting in January. | 23/11/2023 | Nov-23 | par_body | null | null | null | hawkish |
The Riksbank has no plans to begin selling its holdings of non-government bonds. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
If monetary policy were to need to be adjustment going forward, changes in the policy rate are assessed to be the most appropriate tool. | 23/11/2023 | Nov-23 | par_body | null | null | null | hawkish |
Maturities and sales will mean that the Riksbank's holdings of securities fall rapidly in the coming years (see Figure 9). | 23/11/2023 | Nov-23 | par_body | null | null | null | hawkish |
Next year, the Riksbank is planning to return to the topic of what comprises a reasonable level for its asset holdings in the long term and describe in more detail how such a portfolio should be composed. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
Inflation falls towards the target when economic activity slows down | 23/11/2023 | Nov-23 | par_title | null | null | null | positive |
There are clear signs that demand is slowing down in the Swedish economy as a result of the implemented policy rate increases. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
GDP is expected to continue falling for some time to come (see Figure 10). | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
As mentioned earlier, signs that the economic slowdown has reached the labour market have become clearer and the employment rate is assessed to be slightly lower than in the most recent forecast from September. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
However, it is important to bear in mind that the downturn on the labour market is modest and taking place from a strong starting point. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
In addition to the effect of the rising interest rates, demand is also held back by a very weak development in real wages this year. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
The lower activity in the Swedish economy, together with an expected strengthening of the krona exchange rate, will contribute to inflation falling towards the target during the course of next year (see Figure 11). | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
As in previous forecasts, inflation measured as the target variable CPIF is expected to come close to the target slightly sooner than underlying inflation measured as the
CPIF excluding energy. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
The forecasts are described in more detail in Chapter 3. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
The economic outlook remains uncertain | 23/11/2023 | Nov-23 | sub_sec_title | null | 1.3 | null | neutral |
Several factors make economic developments abroad and in Sweden uncertain. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
Ultimately, these factors can also affect Swedish inflation prospects and the Riksbank’s monetary policy. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
One risk that has gradually intensified in recent years concerns the sustainability of public finances abroad. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
Major fiscal policy support measures were launched in conjunction with the pandemic which, in turn, led to large budget deficits and rising government debt in many countries. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
At the same time, the global level of interest rates has risen sharply in recent years, making it more difficult to fund government debt. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
This could pose risks to growth abroad for two main reasons. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
Firstly, the need for fiscal policy tightening could increase, and secondly confidence among economic agents could be affected, which would further make borrowing difficult. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
In this context, it is worth noting that public finances in Sweden are very strong, which reduces the need for fiscal policy tightening and also improves the conditions for the Riksbank’s monetary policy. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
The Swedish economic outlook is also surrounded by a number of uncertainty factors. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
One of these concerns demand for consumption among Swedish households. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
As described earlier, consumption has already been affected quite significantly by the rising interest rates. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
However, despite their short interest-rate fixation periods, households’ mortgage rates in the stock of borrowers have not yet been fully affected by the rate rises implemented so far, and households are also indirectly affected by the debts of tenant-owner housing associations which have a longer interest-rate fixatio... | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
If households have not accounted for this, there is a risk that consumption will be weaker than expected going forward. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
On the other hand, households built up savings during the pandemic that they can now use to maintain their consumption to some extent. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
However, as there is a lack of current data on the allocation of households’ assets and savings it is difficult to assess the size of this effect. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
Households’ propensity to use their savings for consumption is also affected by developments in the labour market. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
The Swedish labour market has long resisted the downturn in demand well. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
One conceivable explanation for this is that companies have retained their labour, with the lessons learned from the recovery after the pandemic, when it was difficult to find staff, fresh in their minds. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
However, it may also be connected with the economic downturn not expected to be particularly deep or long-lasting. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
However, signs of a weakening labour market are now becoming visible. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
Admittedly the Riksbank's forecast is that the weakening will be relatively small, but if demand falls more than expected, companies could rapidly change their behaviour and instead rapidly start laying staff off. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
This could in turn slow down demand even further, by households increasing their precautionary savings, due to concern they could lose their jobs. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
In this eventuality, economic activity and the labour market in Sweden could develop less favourably than in the Riksbank’s forecast. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
The rising interest rates have also created considerable uncertainty on the housing market. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
After the sharp fall last year, prices have not changed as much this year, but they have fallen somewhat in recent months. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
The Riksbank's forecast is that prices will fall somewhat further in the coming period, and thereafter stabilise and then gradually begin rising again. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
However, developments are very difficult to assess. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
It is primarily household consumption and housing investment that could be affected if housing prices develop differently from the Riksbank's forecast. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
One risk that the Riksbank has long warned about concerns the commercial property sector, where some highly-leveraged companies have encountered problems in the wake of rising interest rates. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
However, there are major differences between companies in the sector: some have strong balance sheets and are in a relatively good position to manage rising interest rates, while other, highly indebted companies are more vulnerable. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
The Riksbank’s analyses indicate that the Swedish banks have sufficient capital to deal with significant problems in the property sector. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
But if even more property companies experience difficulties, confidence in the banking system could deteriorate and impact the banks’ funding conditions, which could affect their ability and willingness to supply credit. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
In such a scenario, the real economy could also be adversely affected. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
The Riksbank therefore considers that the major Swedish banks should aim to have a satisfactory margin down to the formal capital requirements. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
As mentioned earlier, the development of the future krona exchange rate is very uncertain. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
Some of the factors that could cause the krona to deviate from the Riksbank's forecast are linked to the risks regarding the economic prospects discussed in this section. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
For instance, both an increase in geopolitical tension abroad and poorer economic prospects in Sweden could cause the krona to depreciate more than expected going forward. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
Alternative scenarios for inflation and monetary policy | 23/11/2023 | Nov-23 | sub_sec_title | null | 1.4 | null | neutral |
The scenarios in this section aim to describe how monetary policy can be affected if inflationary pressures are higher or lower than in the Riksbank's forecast. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
Over the past year, the Riksbank has published several scenarios where inflation becomes higher or lower than expected for various reasons, for example, exchange rate developments, changes in commodity prices or company pricing. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
The purpose of the scenarios is to illustrate that developments are uncertain, to point to uncertainty factors that the Riksbank is currently focussing on and to try to indicate how the monetary policy plan may need to be changed if the uncertainty factors materialise. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
This section discusses two scenarios for inflation: one where it is higher and one where it is lower than in the main scenario. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
The first scenario, where inflation becomes higher than expected, is based on companies’ pricing. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
There it is assumed that companies increase their margins to maintain their profitability. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
This means that inflation becomes higher than expected, but GDP is weaker than expected. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
The second scenario is linked to the risks of weaker demand as discussed in Section 1.3. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
In this scenario both GDP and inflation are lower than in the main scenario. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
Unlike the scenarios previously published over the past year, we only show here the development when monetary policy adapts to the new conditions in the scenarios and try to bring inflation back to the target within a reasonable period of time. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
Companies increase their margins and inflation becomes higher than expected – monetary policy is further tightened | 23/11/2023 | Nov-23 | par_title | null | null | null | hawkish |
At present we see signs that companies’ costs are increasing at a slower pace than before. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
As described earlier, companies’ price plans do not have the same focus on price increases as when inflation was at its peak at the end of last year. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
But it is difficult to know what will happen going forward. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
In this scenario it is assumed that companies do not adapt their prices in accordance with their costs, but instead increase their margins. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
This means that inflation becomes higher than expected in the coming period. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
The higher inflationary pressures in the scenario are to some extent illustrated by the red line in the left-hand image in Figure 13, where inflation becomes higher despite tighter monetary policy. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
However, the higher inflationary pressures are reflected not only in higher inflation than expected, but also in that indicators, such as companies’ price plans, show an unexpected upturn. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
There are strong reasons for monetary policy to react with a higher policy rate if inflationary pressures prove to be higher than expected. | 23/11/2023 | Nov-23 | par_body | null | null | null | hawkish |
A possible monetary policy response is shown in the red line in the right-hand image in Figure 13. | 23/11/2023 | Nov-23 | par_body | null | null | null | dovish |
By beginning interest rate increases at an early stage during the first half of next year, the Riksbank is trying to both soften demand so that companies cannot raise their prices as planned, and to avoid the higher inflation giving rise to so-called secondary effects that raise inflation expectations. | 23/11/2023 | Nov-23 | par_body | null | null | null | hawkish |
In this way, one also avoids wage formation being affected to any significant extent, and inflation can approach the target during the forecast period. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
This is illustrated by the red line in the left-hand image in Figure 13. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
GDP develops somewhat weaker when companies’ margins become higher than expected. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
This is because the companies make an active choice to produce smaller volumes at higher prices. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
In this way, higher margins can be said to be a type of supply shock. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
If the Riksbank raises the policy rate, it dampens the real economy further, so that the GDP level is lower and unemployment is higher. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
The lower GDP level compared with the main scenario is shown in the red line in Figure 14. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
However, compared with monetary policy not reacting quickly and instead needing to raise the policy rate at a later stage, the long-term real economic costs are small. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
Lower demand pushes down inflation faster – interest rate cuts begin earlier | 23/11/2023 | Nov-23 | par_title | null | null | null | negative |
One possible reason why inflation could become lower than in the main scenario is that the development of demand is weaker than expected. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
Section 1.3 described some possible reasons why this could happen, which could stem both from abroad
and from domestic conditions. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
If demand becomes lower than expected, it could mean both that the development of the real economy is weaker and that inflation becomes lower than in the main scenario. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
This is partly because it would be more difficult for companies to raise their prices when demand weakens. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
The red line in the right-hand image in Figure 15 shows a possible monetary policy reaction to the weaker demand and lower inflation. | 23/11/2023 | Nov-23 | par_body | null | null | null | dovish |
The fact that the real economy and inflation are changing in the same direction, which is normal in disturbances to demand, in some way simplifies the monetary policy trade-off: it clearly indicates a less contractionary monetary policy than in the main scenario. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
But in today’s situation, the trade-off is nevertheless complicated by inflation having been much higher than the target level for a period of time and remaining so. | 23/11/2023 | Nov-23 | par_body | null | null | null | negative |
The Riksbank has on several occasions over the past year communicated that lowerthan-expected inflation is much less of a problem than higher-than-expected inflation. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
Although the scenario means that the real economy and inflation “pull monetary policy in the same direction”, it is likely that the Riksbank would not immediately begin to cut the interest rate. | 23/11/2023 | Nov-23 | par_body | null | null | null | neutral |
It is therefore assumed that interest rate cuts will instead begin in the middle of next year. | 23/11/2023 | Nov-23 | par_body | null | null | null | dovish |
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