Riksbank Executive Board Retains 1.0% Swedish Repo Rate but Lowers Projected Future Rate Path

April 17, 2013

The repo rate needs to remain at a low level for a longer period of time to support the recovery to ensure that inflation rises towards the target. …Gradual increases in the repo rate are not expected to begin until the second half of 2014, which is around a year later than the earlier forecast.

The rate decision was expected.  The modification of future rate guidance, which is a forecast but not a pre-commitment, was a surprise and accompanied by downward revisions in the outlook for inflation for this year and next in the statement released today by officials.  Reasons given for projecting lower inflation of 0.1% in 2013 and 1.4% in 2014 are “partly because companies are now assessed to have more difficulty in passing on higher costs to consumer prices and partly because of the stronger krona. At the beginning of 2015, core CPIF inflation is expected to be close to 2 per cent.”  Two of the six board members again dissented in favor of rate cuts now and a lower future repo path, but the four-person majority rejected the dissenting opinion because “it would further increase the risk of imbalances building up,” by which the majority is referring to the high indebtedness of households in Sweden.  One of the dissenters, Svensson, wanted an immediate rate cut of 50 basis points, while the other, Ekholm, sought a 25-bp adjustment.  Both would not begin normalizing the rate until the third quarter of 2014. 

The statement acknowledges that “after a weak outcome at the end of last year, the Swedish economy is now showing a gradual recovery.”  Following four 25-bp rate cuts administered in December 2011, February 2012, September 2012, and December 2012, officials consider the current monetary policy stance to be “very expansionary.”  The next Swedish interest rate announcement is scheduled for July 3rd.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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