Swedish Riksbank Adopts Negative Interest Rate to Counter Too Low Inflation

February 12, 2015

The Swedish Riksbank’s repo rate has been cut from zero to -0.1%.  In addition, plans were unveiled to do SEK 10 billion of quantitative easing via the purchase of one-to-five year government bonds, and officials announced their readiness to do more if needed and not be tied down to changing policy only at scheduled Board meetings.  The rate cut was decided unanimously, but one dissent was cast against quantitative easing.  To get the repo rate level down previously to zero, cuts of 25 basis points were made in December 2011, February 2012, April 2012, December 2012, December 2013, and after a 50-bp reduction in July 2014, another one of 25 bp last October.

Swedish monetary officials feel that stronger economic growth is taking hold but worry that inflation remains so low that expected inflation will also be dragged downward.  In today’s statement, the Board lowers projected 2015 CPI average inflation to 0.1% and puts core inflation below 1.0% at 0.9%.  2016 inflation is also revised 0.1 percentage point lower to 1.9%.  In its future rate guidance, officials indicate that the repo rate is unlikely to be raised before mid-2016 and believe it will be 0.15-0.20% even in the first quarter of 2017.  But a year later, the rate is expected to lie between 1.4% and 1.45%.  Projected GDP growth is 2.7% this year, 3.3% in 2016 and 2.2% in 2017.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.