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Minutes: Riksbank Board Sees Need For Expansionary Policy To Continue

Members of the Riksbank Executive Board agreed last month that the monetary policy must continue to remain expansionary due to low inflation and also due to the need to boost economic growth, the minutes of the October meeting showed on Wednesday.

Following the October 23-24 meeting, the Swedish central bank held its repo rate at 1 percent for the fifth month in a row, after reducing it in December. The rate was left unchanged to enable inflation to rise towards 2 percent and to support the economic upturn, the bank had said.

Further, the bank said the repo rate needs to remain at this low level until economic activity is stronger and inflation rises and is not expected to be raised until the end of 2014.

A majority of four members thought this guidance was appropriate as they expect the economy to show a more tangible improvement and inflation to have risen, by then, so that it will be possible to begin raising the repo rate towards a more normal level, the minutes said.

These members said a repo-rate cut now could bring inflation back to 2 percent somewhat more quickly, but it could also increase the macroeconomic risks associated with the high level of household indebtedness.

A majority of members felt an unchanged repo rate was an appropriate trade-off between the need for short-term stimulus to get inflation to rise towards the target and consideration of the risks associated with household indebtedness, the minutes said.

The two dissenting members, Deputy Governors Karolina Ekholm and Martin Floden, sought a quarter point reduction in the repo to 0.75 percent to bring inflation to the target more quickly. These members assessed that such a cut would have little effect on the risks relating to household indebtedness, the minutes said. They then advocated slightly different rates of increase, it added.

The minutes also said that all Executive Board members agreed that once measures have been taken in the field of macroprudential policy then the preconditions for monetary policy will be affected. But, they differed in their views regarding to what extent macroprudential policy measures are already in place and how extensive they will ultimately be.

by RTT Staff Writer

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