Swedish Riksbank

December 21, 2016

The final Executive Board meeting of 2016 produced a

  • An unchanged negative 0.5% repo rate. That’s been the level since a 15-basis point cut last February. The rate turned negative a year earlier in February 2015 and has not been above zero since a 25-basis point reduction in October 2014.
  • Unchanged projected inflation of 1.0% this year, 1.4% next year, and 2.2% in 2018. Inflation in 2019 was bumped higher to 3.0% from 2.9%. Core CPI forecasts remain at 1.6% for 2017, 1.9% in 2018 and 2.1% in 2018. Projected growth was revised a little higher for 2016 and 2017 but a little lower for 2018 and 2019.
  • An expanded bond purchase program. The level of this quantitative stimulus will be SEK 245 billion at the end of this month, and a further SEK 30 billion  is planned for the first half of 2017.
  • A dovish statement.

The statement errs on the side of accommodation in several ways. Foremost, it asserts that “there is still a greater probability that the rate will be cut than that it will be raised in the near term. Increases in the repo rate are not expected to begin until the beginning of 2018.” Also, risks are observed that could prevent inflation from rising. Inflation has been lower than assumed recently, and the krona could appreciate more rapidly than assumed given the dichotomy between the monetary directions of the Fed and ECB. Finally, confidence in the Riksbank’s inflation target of 2.0% could be compromised by the prolonged spell of sub-target actual inflation. The statement reiterates a readiness to loosen monetary policy additionally but also suggests a possible future need for “targeted measures within housing policy, fiscal policy and macroprudential policy” to counter any adverse side-effects of prolonged negative central bank interest rates.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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