Swedish Repo Rate Halved Unexpectedly to 0.25%

July 2, 2009

A sixth rate reduction of this cycle has been implemented by the Swedish Riksbank.  Today’s cut was from 0.50% to 0.25%, which was declared a “practical” lower limit in a statement released by monetary authorities.  Therefore, officials said the 0.25% repo rate level would be likely to be retained for a year and announced additional plans to offers banks SEK 100 billion at the repo rate plus 0.15 percentage points for a period of 350 days was announced as a further quantitative step to promote lower lending rates to firms and households.  That offer will be done on July 13, and minutes of today’s meeting will be published on July 16th.  In all the repo rate has been reduced by 450 basis points from a peak of 4.75%.  Prior cuts were made on October 8 of 50 bps, October 23 of 50 bps, on December 4 of 175 bps, on February 11th of 100 bps and on April 21st of 50 bps.

While conceding that signs that the recession seems to be lessening in intensity, officials reduced their projection for 2009 growth to minus 5.4% from a forecast of minus 4.5% made at the time of the April rate cut, and they only project 1.4% growth in 2010.  Core inflation is projected at 1.9% both this year and in 2010 followed by 2% in 2011, so such stays near target throughout the period.

The Riksbank Governor missed today’s meeting due to illness, and one of the policymakers, Svensson, preferred a repo rate of zero.  Another dissenter, Parak, was not so bearish about growth and objected to the pre-announcement that the repo rate is likely to hold at 0.25% for a full 12 months.  Analysts had widely expected the repo rate to hold steady at 0.5%.  The surprise of today’s action could subject the krona to some downward pressure against the euro. As expected, the ECB  Governing Council has just announced that its official interest rates will be left unchanged.

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



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