Swedish Riksbank: No Policy Change this Time but Will Loosen Further If Inflation Tracks Lower than Assumed

September 3, 2015

Sweden has a very expansionary monetary policy the embodies a negative interest rate, bond buying and the threat of currency intervention.  All this is intended to raise inflation closer to 2% next year.  At the prior meeting on July 2, the repo rate was cut by 10 basis points, and a bond buying program totaling 80-90 billion kronor to be acquired by end-2015 was increased by a further SEK 45 billion.  Today’s subsequent Executive Board meeting did not modify those settings but served notice that the policy bias continues to embody a move toward even greater stimulus.  The statement ties current evidence of rising inflation to the series of monetary policy easings, and the plan is to maintain a policy as loose as now into 2016 and, should inflation fail to rise closer to 2.0%, to augment the stimulus even further. 

Officials revised inflation in 2015 and 2016 marginally lower to 0.0% and 1.8% but bumped projected inflation in 2017 up a tenth percentage point to 2.8%.  Core inflation, the bank’s operative target, was cut to projections of 0.9% in 2015, followed by 2.0% next year and 2.2% in 2017.  Swedish growth is expected to average 3.0% over the three years.  Highly uncertain overseas economic and financial developments pose the main downside risks.

There have been many policy easings in recent years.  The repo rate was cut in six steps from 2.0% to 0.25% between December 2011 and July 2014.  A reduction to zero occurred in October 2014, followed by moves this year to -0.10% in February, -0.25% in March and -0.35%, the current level, in July.  Quantitative stimulus was also launched this year, and intervention has been utilized to counter excessive krona appreciation.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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