Given this, it is quite natural that the interest rate forecast as indicator of the future repo rate has been devaluated somewhat.13 One idea that I am personally positive to, is to publish not merely an interest rate forecast, but to supplement it with a promise to condition the policy on certain developments in the economy.14 The conditioning that currently appears most relevant is to make clear that the policy rate will be held at zero until inflation has reached a certain level. Usually, central banks begin raising the interest rate before inflation has reached the target – start putting the brakes on in advance, so to speak. But the current situation is different. One problem for the Riksbank and many other central banks over the past decade has been that inflation has tended to undershoot the target. If this were to continue to apply, there is a risk that inflation expectations in the economy would fall, even long-term ones. As I have already described, this could make it more difficult to stimulate the economy using the policy rate. This could, in turn, mean that recessions become deeper, inflation and inflation expectations fall further, and so on in a negative spiral. There is therefore good reason to safeguard the symmetry of the inflation target. Not raising the repo rate before inflation has reached the target is a way of not putting the brakes on in advance.
To put this into perspective, the percentage of employment accounted for by firms under high financial pressure2 would rise by 1.6% following the interest rate increase, from 9.1% before the hike. Household income is primarily being supported by labour market developments – given the year-on-year increase of 3.6% in the number of persons employed and of 5.1% in hours worked – and, to a lesser extent, by the government policy support measures. However, high inflation is driving a significant decline in real disposable income. Indeed, in 2022 H1 households’ disposable income increased by 4.2% year-on-year in nominal terms, which transforms into a 3.1% fall once developments in the private consumption deflator are taken into account. Bank lending to households has held stable in recent months. However, a distinction can be drawn between the performance of mortgage lending (growing consistently at rates of just over 1%) and that of consumer lending (shrinking at rates of around 4%). Unlike firms, in 2022 households are not accelerating the growth of their bank deposits, which have been on a sustained growth path (above 5%) since 2021. Together with cash, they account for 40% of households’ total financial assets. Simulations have also been carried out on the potential impact on household income of the rise in energy prices and interest rates, which is notably uneven across income percentiles. The upturn already observed in energy prices would generate an increase in the median household's energy expenditure as a proportion of its budget from 10% to more than 12.5%.