Swedish Riksbank

December 20, 2017

Sweden’s repo rate will stay at negative 0.50% after a unanimous vote of the central bank executive board. It was zero percent from October 2014 until a 10-basis point cut in February 2015 pushed policy into negative interest rate territory. Three more cuts over the ensuing year depressed the repo rate to -0.5% in February 2016. The Riksbank has also engaged in quantitative stimulus and by the end of this month will have purchased SEK 290 billion. Although that ceiling was not extended, a statement released after its meeting announces plans to reinvest maturing bonds.

┬áLarge redemptions, amounting to around SEK 50 billion, will occur during the first half of 2019. In addition, there are coupon payments totalling around SEK 15 billion from January 2018 to June 2019. To retain the Riksbank’s presence on the market and attain a relatively even rate of purchase going forward, the reinvestments of these redemptions and coupon payments will begin as early as January 2018 and continue until the middle of 2019. This means that the Riksbank’s holdings of government bonds will increase temporarily in 2018 and the beginning of 2019.

Two executive board members, Ohlsson and Floden disagreed with this reinvestment. The statement indicates that an initial 25-basis point interest rate increase seems probable around the middle of 2018. Between 4Q18 and 4Q19, the rate is likely to rise by half a percentage point, and a further 50 bps of tightening would be on tap for the year between 4Q19 and 4Q20.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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