Therefore, this cut means the Riksbank views the inflation risk as minimal. Looking forward, the Riksbank justifies its low inflation forecast on various grounds, which we have mentioned several times. It should not be closed in 2000. Indeed, although noting that financial markets turbulences seem to be over, the Riksbank notes that growth prospects for Euroland, Japan, and big trading partner Norway prospects have recently dimmed. Accordingly, it revised down its export growth forecast for 1999.
Inflation is low.
External price pressures are clearly on the downside, putting Swedish firms' margins under pressure in a fierce competitive environment for market shares. They are not so worried about the fiscal policy outlook, and assume, as we do, that fiscal policy will not embark on a massive spending boost. The overall general government budget balance should remain in surplus over the forecast horizon. This scenario presupposed that the repo rate was left unchanged, which it was not. Therefore, we expect the Riksbank to remain on hold for sometime with an easing bias, in order to monitor the data flow.