Swedish Riksbank Eases Monetary Policy Stance Significantly

July 3, 2014

inflation is lower than expected and it is now assessed that underlying inflationary pressures are clearly lower than assessed in April. The Executive Board of the Riksbank considered that an even lower repo rate is required for inflation to rise towards the target of 2 per cent. The repo rate is now being cut by 0.5 percentage points to 0.25 per cent, at the same time as the repo-rate path is revised downward substantially. Increases in the repo rate are not expected to begin until the end of 2015.

A statement released after the Executive Board’s 4-2 vote cuts projected CPI inflation to 1.3% on average in 2015 from a prior estimate of 2.2%.  In the revised projected repo rate path, such climbs only to 1.45% in the third quarter of 2016 versus 2.4% predicted back in April.  The repo rate doesn’t reach 2.35% until 3Q17.  Instead of averaging 0.65% in the final quarter of 2014 as assumed before, officials are now committed to holding the rate at 0.25% not only though then but for the ensuing three quarters as well.

The two dissents came from the Riksbank’s Governor and Deputy Governor.  They favored easing but only by 25 basis points at this time.  They also wanted a higher repo path than the majority in subsequent quarters.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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