Swedish Riksbank Repo Rate Cut to 1.5%

February 16, 2012

For the second straight meeting, Swedish monetary policy has been eased.  The benchmark repo rate had been reduced in late December to 1.75% from 2.0% in the first cut since July 2009, and it was reduced again today by a 4-2 vote to 1.5%.  Today’s result was correctly anticipated by analysts.  Both dissenters wanted to reduce the interest rate by 50 basis points, and whereas new interest rate guidance suggests that the repo rate will stay at 1.5% throughout 2012, the dissents from Karolina Eckholm and Lars Svensson favored additional future rate reductions by the third quarter of 2012 of 25-50 basis points and no policy tightenings before late 2013.

A statement from the central bank’s Executive Board halved projected GDP growth this year to 0.7%, declaring the externally-induced slowdown seen thus far in GDP and exports more severe than expected previously.  By comparison, GDP expanded 4.5% last year, and growth in 2013 is only seen returning to 2.1%.  Unemployment doesn’t move below 7.0% through 2014, and headline and core inflation subside this year to 1.4% and 1.1% versus a target of 2.0%.  The repo path predicted by the Board’s majority has such rising to 2.2% in 1Q14, which is revised down from a prior expectations of 2.6%, and 3.0% in the first quarter of 2015.

The minutes of this month’s meeting get published on February 29th.  The second interest rate policy meeting will be held in April.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.