Swedish Riksbank Eases 50 Basis Points

April 21, 2009

The Swedish Riksbank has been halved to 0.5%.  Consensus estimates had looked for a cut to 0.25%, but monetary officials are leery that very low rate levels “could have negative effects on the functioning of the financial markets,” a sentiment shared by policymakers at other central banks.  The Riksbank statement leaves open the possibility of a further cut to 0.25%.  More importantly, the projected future rate path — the Riksbank is one of the few central banks that publicizes a tentative future path for its key rate — was modified significantly in the portion through end-2010.  Thus, the repo rate in 1Q11 is projected at only 0.8%, implying a net increase of just 25 basis points during the coming two years, down from 1.6% projected two months ago. By 1Q12, the repo rate would rise to 3.0%, only slightly below the previously indicated 3.2% for that period.  Riksbank officials revised projected 2009 GDP growth to negative 4.5% from 1.6% and projected growth in 2010 to 1.3% from 1.7% previously.  Revisions to projected CPI inflation were modest by comparison, dips of just two-tenths to -0.3% in 2009 and of three-tenths to 1.3% in 2010.  On-year growth in March 2011 is put at an above-target 2.6%.  There was a single dissent in today’s vote by Lars Svensson, who urged a cut of 75 basis points to 0.25%.

Today’s cut was the Riksbanks fifth of the cycle following reductions of 50 basis points each on October 8 (as part of a Fed-led coordinated round) and October 23, 175 basis points on December 4, and 100 basis points on February 11, 2009.  Minutes of today’s meeting will be published on May 5th, and the Executive Board will hold its next scheduled policy meeting on July 1st.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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