Transcript Slides from the press conference

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%
50%
Repo rate
5
5
4
4
3
3
2
2
1
1
0
0
04
05
06
07
08
09
10
Note. The uncertainty interval does not take into account the zero bound.
11
12
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
-8
February
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
Retail sales
Households' total consumption
-2
-2
-4
-4
94
95
96
97
98
99
00
01
Note. The first quarter of 2009 refers to the average
of outcomes in January and February.
02
03
04
05
06
07
08
09
10
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
April
February
12
12
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
Euro area
Sweden
65
65
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
350
300
400
Sweden
Euro area
USA
United Kingdom
350
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%
50%
Repo rate
5
5
4
4
3
3
2
2
1
1
0
0
04
05
06
07
08
09
10
Note. The uncertainty interval does not take into account the zero bound.
11
12
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
1
Mortgages - averages
Mortgages - interest rate according to financial market statistics
0
jan/ 07
0
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
Jan/ 04 Jul/ 04 Jan/ 05 Jul/ 05 Jan/ 06 Jul/ 06 Jan/ 07 Jul/ 07 Jan/ 08 Jul/ 08 Jan/ 09
0.0
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
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
6
GDP
5
5
Hours worked
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
Note. Broken lines refer to the Riksbank’s forecasts.
00
05
10
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
Note. Broken lines refer to the Riksbank’s forecasts.
09
10
11
12
Source: The Riksbank
Competition-weighted exchange
rate, TCW
Index, 18 November 1992 = 100
160
160
April
155
155
February
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
Productivity
Unit labour costs
-1
-1
-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