Transcript of the introductory statement from the press conference

25th March 2010

GOVERNOR

Today the Bank Board discussed the monetary policy rate settings. After the discussion we decided to leave the 2W repo rate unchanged at 1%. Four members voted for leaving rates unchanged and two members voted for lowering rates by 0.25 percentage point.

What were the reasons? The reasons can be described by saying that no major changes have occurred since the last monetary policy meeting. We still think the economy is developing in line with our forecast. We believe that at the monetary policy horizon of four to six quarters it should be close to the 2% inflation target. As regards rates, the forecast indicates that rates should remain stable in the near future and then rise gradually. As I said, the economy is more or less in line with what the forecast indicates, so the new information has not shifted it in any major way. However, where there is new information, it is leading more towards slightly anti-inflationary risks.

I will just recapitulate the current forecast and the actual outcomes. We can see that actual inflation is rather lower than forecasted. This is due partly to a change in the weights of the consumer basket, which was a new piece of technical information since last time. However, monetary-policy relevant inflation is also below the forecasted level.

How does the external environment look? No dramatic changes here either, but again if there is a shift at all, then it is more in the anti-inflationary direction. You can see this above all in the different view of expected interest rates, as the new Consensus Forecast assumes lower interest rates than we expected in our forecast. This could perhaps be interpreted as meaning that the market currently expects the interest rate rise in the euro area to be postponed and perhaps be more gradual. Here we also have the comparison regarding oil and the dollar, which are influences that partly offset each other.

As for the domestic economy, here’s an overview of the data you know. GDP: as we know, the annual decline had already moderated somewhat in the third quarter. This trend continued into the fourth quarter and we also recorded moderate quarter-on-quarter growth in the fourth quarter. However, further data suggest that economic activity will remain none too strong, especially as regards weak household consumption. Exactly as the forecast expected, it will probably remain relatively weak this year. Indicators such as the decline in retail sales indeed suggest this. As for the labour market, as we also expected, the reaction to the downturn in the economy is lagged. So, unemployment, which we expect to peak this year, is rising. One of the things we discussed today was how wages might react, because there we see risks in both directions. So far, annual nominal wage growth has been faster than we expected and than one would intuitively expect given the evolution of economic activity. So we can imagine – also given that there are various data on wages – we can imagine that this was a one-off effect and conversely the risk for this year may well be anti-inflationary. So as I say, the risks are in both directions there.

Next, to give you an overview, a comparison of the main indicators with the forecast. You can see, as I said at the start, that there are no dramatic changes. The decline in GDP in the fourth quarter is rather greater than we expected in the forecast. I have already commented on inflation. Inflation is below the forecast in this respect, and unemployment is rather higher than forecasted, but there are no major changes. So, what I said at the beginning applies: the evolution of the economy is broadly in line with the forecast.

To sum up, as I said right at the beginning, the risks are slightly anti-inflationary. If I were to give two main reasons, they are probably the evolution of interest rates abroad and inflation, which as we have already seen is also lower than we expected and we think this will persist in the near future. We can see no stronger risks towards higher-than-forecasted inflation, and I already said that we regard wages as a two-way risk.