Riksbank Vote For Unchanged Swedish Repo Rate Wasn't Unanimous

September 3, 2009

The Swedish Riksbank retained a 0.25% repo rate and projected that such is unlikely to be raised until the final quarter of 2010.  Today’s action breaks an uninterrupted streak of six reductions totaling 450 basis points from a high of 4.75%: 50 bps last October 8 in conjunction with several other central banks, then 50 bps on October 23, 175 bps on December 4, 100 bps on February 11, 50 bps on April 21, and 25 bps on July 2nd.  A statement from the central bank revealed one dissenting vote in favor of a 25-bp cut and keeping the rate at zero for a whole year.  Two other policy makers were part of the majority to retain a 0.25% rate, but they were more optimistic about growth and therefore endorsed a rate path that starts rising sooner and continues to do so more steeply.  The majority revised core CPI inflation down three-tenths in 2010 to 1.6% and by a tenth for 2011 to 1.9%.  Those revisions and the overall guarded view of economic and financial market prospects are associated with the very low level of activity from which the economy will be recovering.  Projected GDP growth was actually revised upward a bit to 1.9% next year and 3.2% in 2011.  The repo rate is expected to average 1.8% in 3Q11 and 4.0% in 3Q12.

Further underscoring the intent to run a very accommodative, growth-supporting monetary policy throughout the coming year, Riksbank officials announced an extension of unconventional measures.  One-year variable repo liquidity will be pumped into the market at a starting rate of 0.40% in the amount of another SEK 100 billion (about $13.8 billion) in a tender on September 14.

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


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