Swedish Riksbank Monetary Policy Left as It Was

April 26, 2018

The Swedish central bank repo rate has been at negative 0.50% since a 15-basis point reduction in February 2016. By that time, the rate had been negative for a whole year, and it has been non-positive since a 25-basis point cut to zero percent in October 2014. The vote by the Riksbank Executive Board to leave the repo rate at -0.50% drew one dissent from Deputy Governor Ohlsson, who favored a 25-basis point hike to -0.25% in light of solid Swedish and global economic growth.

However, the majority of policy makers retained the status quo and even tweaked forward policy guidance, now saying that an initial rate hike is unlikely to happen until close to the end of this year rather than sometime soon after the mid-point. A released statement observes that while actual inflation has behaved as assumed, underlying Swedish inflation in recent months has followed a somewhat lower than expected course. This is surprising given the strength of GDP and some weakness in the krona and this fact “raises questions regarding the strength of the development in inflation.”

In summing up, the Executive Board statement proclaims,

It has taken a long time to bring up inflation and inflation expectations, and there is considerable uncertainty over the development of inflation. Monetary policy thus needs to proceed cautiously. If the conditions for inflation were to change, the Executive Board is prepared to adjust monetary policy. The risks of too low inflation merit particular attention, as at the prevailing interest rate levels this is more difficult to manage than inflation that is too high.

And to back up that qualitative guidance, the new forecast of likely levels of the repo rate put such at -0.13% in the second quarter of 2019, 0.42% in the second quarter of 2020, and 1.01% three years from now.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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