Swedish Repo Rate Likely to Stay at 0.75% for Another Year
April 9, 2014
The Swedish Riksbank sliced its repo rate four times between December 2011 and December 2012 and implemented a fifth reduction (all by 25 basis points) in the final month of 2013. Those changes pushed Sweden’s key short-term interest rate down to 0.75% from 2.0%, and while the 0.75% level most likely will be retained for another year, an easing policy bias has been maintained at least in the short term. Today’s statement from the Executive Board cuts projected average CPI inflation by 0.4 percentage points (ppts) in 2014 and 0.3 ppts in 2015 to 0.2% and 2.2%. Core CPI in 2014 was revised down to 0.7% from 0.9% and by 0.1 ppt to 1.7% next year. Forward guidance sees the repo rate not rising before the spring of 2015, averaging 1.95% in the first quarter of 2016 and 2.65% in the first quarter of 2017.
It is considered appropriate to wait until inflation picks up before beginning to raise the repo rate. The repo-rate path has been adjusted down somewhat and reflects a greater probability of a repo-rate cut in the near term compared with the assessment made in February.
Two of the Board’s six members actually sought a 25-basis point cut now to 0.5% but were overruled by the other members. After gaining an estimated 1.5% last year, real Swedish GDP is now projected to expand 2.7% in in 2014, 3.2% in 2015, and 2.8% in 2016
Copyright 2014, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Swedish Riksbank
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