Swedish Repo Rate Kept at -0.25% But Statement More Guarded

September 5, 2019

The Swedish Riksbank kept its repo rate unchanged at minus 0.25% as had been expected. Although forward guidance in the released statement from the Executive Board of the central bank still implies a second rate increase within the next couple of months, official confidence in that path has declined. “However, market rates have fallen substantially and global interest rates are expected to remain low for a longer period of time. Together with the worsened sentiment, this underlines the importance of proceeding cautiously with monetary policy. The economic prospects are based on the repo rate being raised at a slower rate in the period ahead than in the previous forecast…. The forecasts consider that sentiment has deteriorated but assume that there will not be any further significant downturns in confidence among households and companies abroad and in Sweden. If the economic outlook and inflation prospects were to change, monetary policy will be adjusted.”

The more guarded assessment of the outlook for Sweden’s economy is especially revealed in revised forecasts for inflation and the repo rate path. Projected total and core consumer price inflation rates were revised downward by 0.3 and 0.1 percentage points in 2020 to 1.9% and 1.7% and by 0.5 and 0.1 percentage points to 2.1% and 1.8% in 2021. Whereas officials previously had foreseen the repo rate at 0.52% two years from now and 0.90% by September 2022, the new forecasts are 0.04% a year from now, 0.20% two years from now, and 0.37% in the third quarter of 2022. So that this point is not missed, the statement text explicitly notes that “low interest rates abroad and worsened sentiment mean that the interest rate is expected to be increased at a slower pace thereafter [that is after the near-term hike that is still thought likely] than in the previous forecast.”

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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