Monetary Policy Report

2008:3

Repo rate cut to 3.75 per cent Further cuts over the coming six

months

To alleviate the effects of the financial crisis on economic activity and to attain the inflation target of two per cent

Financial crisis Credit crunch Deeper economic downturn Lower inflationary pressures

Other measures also necessary to improve the functioning of the markets

Repo rate cut

The financial crisis……affects for instance Interest rates Stock markets Commodity prices Exchange rates

Interbank rate and repo ratePer cent

Sources: Reuters EcoWin and the Riksbank

0

1

2

3

4

5

6

7

8

99 00 01 02 03 04 05 06 07 08 09

0

1

2

3

4

5

6

7

8

Repo rate

Three-month interbank rate

Mortgage rates have risen more than the repo ratePer cent

Sources: Reuters EcoWin, SBAB, Statistics Sweden and the RiksbankRefers to three-month mortgage rate from SBAB, three-month interbank rate and monthly average for three-month mortgage rate for mortgage institutions’ new lending.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

jan/07 apr/07 jul/07 okt/07 jan/08 apr/08 jul/08 okt/08

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0Repo rateInterbank rateMortgages – SBABMortgages – averages

Falling stock marketsIndex, 1999-01-04=100

Source: Reuters EcoWin

50

70

90

110

130

150

170

190

210

230

250

99 00 01 02 03 04 05 06 07 08

50

70

90

110

130

150

170

190

210

230

250Euro area (EuroStoxx)

Sweden (OMXS)

USA (S&P 500)

Lower oil priceBrent crude, USD per barrel

Note. Futures prices are calculated as a 15-day average.Sources: Intercontinental Exchange and the Riksbank

0

20

40

60

80

100

120

140

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

0

20

40

60

80

100

120

140Oil price, outcomeSpot price 22 October 2008Futures, 16 October 2008Futures, MPU September 2008

Falling commodity pricesUSD, index (2000 = 100)

Source: The Economist

100

150

200

250

300

350

04 05 06 07 08100

150

200

250

300

350

FoodMetalsOther agricultural productsTotal

Weaker kronaTrade-weighted exchange rate (TCW), index, 1992-11-18=100

Note. Broken line refers to the Riksbank’s forecast (quarterly data).Source: The Riksbank

120

122

124

126

128

130

132

134

136

04 05 06 07 08 09 10 11

120

122

124

126

128

130

132

134

136TCW-index

TCW-forecast MPUSeptember 2008TCW-forecast MPR 2008:3

Deeper economic downturn

Lower capital value More difficult to borrow Lower demand from abroad Increased uncertainty

Lower growth abroad and in SwedenAnnual percentage change, calendar-adjusted data

Sources: The IMF, Statistics Sweden and the RiksbankNote. Broken line and bar represents the Riksbank’s forecast.

-3

-2

-1

0

1

2

3

4

5

6

1980 1985 1990 1995 2000 2005 2010

-3

-2

-1

0

1

2

3

4

5

6SwedenThe world

Pessimism among households…Net figures

Source: National Institute of Economic Research

-60

-40

-20

0

20

40

60

98 99 00 01 02 03 04 05 06 07 08

-60

-40

-20

0

20

40

60

The Swedish economyOwn financesLabour market

… and in the business sectorSeasonally-adjusted index and net figures, manufacturing industry

Sources: National Institute of Economic Research and SwedbankNote. Index over 50 is growth, under 50 is decline.

30

34

38

42

46

50

54

58

62

66

70

01 02 03 04 05 06 07 08

-30

-24

-18

-12

-6

0

6

12

18

24

30Purchasing managers’ index (left scale)

NIER's Confidence indicator (right scale)

Lower GDP growthQuarterly changes in per cent calculated as an annual rate, seasonally-adjusted data

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

-1

0

1

2

3

4

5

6

7

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

-1

0

1

2

3

4

5

6

7MPR 2008:2

MPU September 2008

MPR 2008:3

Lower employmentThousands, seasonally-adjusted data, 3-month moving average

Note. Redundancy notices include outcomes to 20 October.Source: Swedish Employment Service

0

10

20

30

40

50

60

70

80

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

0

3

6

9

12

15

18

21

24New vacant jobs

Unfilled vacant jobs

Redundancy notices (right scale)

Higher unemploymentPer cent of work force, seasonally-adjusted data

Sources: Statistics Sweden and the RiksbankNote. Broken lines represent the Riksbank’s forecasts

0

2

4

6

8

10

12

14

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

0

2

4

6

8

10

12

14Unemployment 16-64 yearUnemployment 15-74 yearMPR 2008:3MPU September 2008

Lower inflationCPI, Annual percentage change

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

-1

0

1

2

3

4

5

04 05 06 07 08 09 10 11

-1

0

1

2

3

4

5

MPR 2008:3

MPU September 2008

Lower repo ratePer cent, quarterly average

Source: The RiksbankNote. Broken lines represent the Riksbank’s forecasts

0

1

2

3

4

5

6

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

0

1

2

3

4

5

6MPR October 2008

MPU September 2008

Uncertainty in the forecasts

Global economic activity and financial crisis worsen

Higher inflationary pressures Weaker krona

Repo rate a forecast – not a promisePer cent, quarterly averages

Source: The Riksbank

0

1

2

3

4

5

6

7

04 05 06 07 08 09 10 11

0

1

2

3

4

5

6

790%75%50%Repo rate

Measures for the financial system

Loans (against collateral) in SEK and USD

Changed collateral requirements Liquidity assistance to Kaupthing

Riksbank’s loansOffered Implemented

SEK SEK 280 billion SEK 180 billion(Further SEK 80 billion Monday 27/10)

USD USD 27 billion USD 27 billion (approx. SEK 130 billion)

Assumption: 1 USD=7.5 SEK

Measures taken by the Government sector The Riksbank SEK 380 billion

Swedish National Debt Office SEK 100 billion(Can be compared with outstanding stock of covered mortgage bonds:

approx. SEK 1 000 billion at end of August 2008)

Government Finansinspektionen

(Swedish Financial Supervisory Authority)

Repo rate a forecast – not a promisePer cent, quarterly averages

Source: The Riksbank

0

1

2

3

4

5

6

7

04 05 06 07 08 09 10 11

0

1

2

3

4

5

6

790%75%50%Repo rate