Swedish Riksbank Seeking More Accommodation in Unconventional Means

December 16, 2014

The Swedish repo rate was cut to zero on October 28th, but a statement after this year’s final regular monetary policy meeting sends the message that attaining a zero nominal interest rate is not the end of the line for augmenting monetary stimulus.  Rather explicit forward guidance is the first go-to policy tool, and it was used at this time.  At the prior meeting, Executive Board officials relayed their expectation that the first repo rate hike was likely to happen around mid-2016.  That projected date has been now moved to end-2016 and been backed up by a clarifying data-driven algorithm that it would be inappropriate for the repo rate to be raised before core inflation is near the 2% target.  This, in turn, is unlikely before the second half of 2016.  Should the path of projected inflation be revised further downward yet again in the future, the projected likely time of an initial rate hike would be pushed outward in response.  Total inflation at the moment is projected to average 0.3% next year and 2.0% in 2016.  In the meantime, the tool chest of policy stimulants is being broadened:  “The Riksbank is also preparing further measures that can be used to make monetary policy more expansionary. Such measures, were they necessary, could be presented at the next monetary policy meeting.”  The first policy meeting of 2015 is scheduled for February 11.

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

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