Monetary policy

meeting September

2007

Swedish economy developing strongly

Cost pressures increasing

Financial unrest creates uncertainty

View of future repo rate remains largely unchanged since June

Repo rate is raised by 0.25 percentage points to 3.75 per cent

Interest rate needs to be raised over the coming years to attain the inflation target of 2 per cent

Inflation on target one year aheadAnnual percentage change

Note. The broken line refers to the Riksbank’s forecast in the MPR 2007:2.

Sources: Statistics Sweden and the Riksbank

-1

0

1

2

3

4

jun-02 jun-03 jun-04 jun-05 jun-06 jun-07 jun-08 jun-09 jun-10

-1

0

1

2

3

4

UND1XCPI

New data since June

Slightly stronger labour market

Low growth in productivity

Rising food prices

Rising inflation expectations

UnemploymentPercentage of labour force, seasonally-adjusted data

Sources: Statistics Sweden and the Riksbank

0

2

4

6

8

10

12

00 01 02 03 04 05 06 07 08 09 10

0

2

4

6

8

10

12Öppen arbetslöshet

Total arbetslöshet

Note. The broken line refers to the Riksbank’s forecast in the MPR 2007:2.

Open unemploymentTotal unemployment

Productivity growthAnnual percentage change

Sources: Statistics Sweden and the Riksbank

-2

-1

0

1

2

3

4

5

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09

-2

-1

0

1

2

3

4

5

Note. The broken line refers to the Riksbank’s forecast in the MPR 2007:2.

Food prices in different channelsAnnual percentage change

Sources: The Economist, Statistics Sweden and the Riksbank

-30

-20

-10

0

10

20

30

40

95 96 97 98 99 00 01 02 03 04 05 06 07

-15

-10

-5

0

5

10

15

20The Economist råvaruprisindex för livsmedel (vänster skala)

Livsmedelspriser i UND1X (höger skala)Food prices in CPI (right scale)

The Economist commodity index -foods (left scale)

CPI and inflation expectationsAnnual percentage change

-1

0

1

2

3

4

00 01 02 03 04 05 06 07 08

-1

0

1

2

3

4KPIHushåll, KIFöretag, KI

Sources: NIER, Statistics Sweden and the Riksbank

CPI

Households, NIERCompanies, NIER

Note. The broken line refers to the Riksbank’s forecast in the MPR 2007:2.

Unrest in the financial markets Problems in the US sub-prime market

Increased uncertainty and reduced willingness to take risks

Disruptions in the interbank market

Less effect in Sweden

Consequences Higher credit spreads/increased loan

costs

Falling stock market prices

Weaker growth Reduced willingness to invest Increased precautionary savings

US certificates and treasury bills

30 day duration, per cent

Sources: Bloomberg and the Federal Reserve Board

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

Apr.07 May.07 Jun.07 Jul.07 Aug.07

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5Asset Backed Commercial Papers

1 month T-bill

Risks

Higher cost pressures Financial unrest

Summary

Swedish economy is developing strongly Cost pressures are rising Interest rate needs to be raised over

coming years to attain inflation target of 2 per cent.

The view of the future repo rate remains unchanged since June

Interest rate path is a forecast, not a promise

Better communication Six monetary policy meetings a year Interest rate path published after

each meeting Three monetary policy reports Three updated forecasts for a small

number of variables Applies with effect from December