Swedish Riksbank Executive Board Keeps Existing Policy Settings

December 15, 2015

The released statement explaining the Board’s decision acknowledges greater-than-expected Swedish growth recently and revises upward projected GDP expansion in 2015 by 0.5 percentage points (ppts) to 3.7%. Because of the influx of migrants and spending associated with that development, the forecasts are raised 0.6 ppts to 3.6% for 2016, 0.2 ppts to 2.9% in 2017, and 0.2 ppts in 2018.  Sweden now has a solid recovery, but the impact on the path of monetary policy is expected to be negligible.  Projected core inflation next year has been revised downward to 1.7% because of krona appreciation, which is lifting import prices.  If the central bank were to lift interest rates prematurely while other central banks continue to run very expansionary policies, officials worry that the krona would come under additional upward pressure.  The statement projects the fourth quarter repo rate level at minus 0.41% next year, 0.12% in 2017, and 0.66% in 2018, the same levels as predicted after the prior Executive Board meeting in late October.

Sweden’s repo rate was cut by 0.25% in December 2011, February, September and December of 2012, 25 bps in December 2013, 50 bps  in July 2014, 25 bps in October 2014, 10 bps last February, 15 bps in March and, most recently, 25 bps to -0.35% this past July.  An asset purchase program was introduced in February 2015, then raised in March, April, July and, most recently, October.  The October increase’s size was SEK 65 billion and brought the total size  of the  bond-buying venture to SEK 200 billion to be completed at mid-2016.  Officials reserve the right to intervene in the foreign exchange markets as needed.  Officials finally stand ready to do more if that seems necessary to return inflation to target.

The Executive Board remains highly prepared to make monetary policy even more expansionary, even between the ordinary monetary policy meetings. The repo rate can be cut further, which is reflected in the repo rate path, and the Riksbank can purchase more securities. The Riksbank is also ready to intervene on the foreign exchange market if the upturn in inflation should be threatened as the result of a problematic market development, for example. Moreover, the Riksbank is prepared to launch a programme of lending to companies via the banks.

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

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