Sweden Keeps Key Rate At -0.5%, Extends Bond Buying

The central bank of Sweden left the benchmark repo rate at -0.5 percent on April 27th, 2017 as widely expected and extended the purchases of government bonds by SEK 15 billion during the second half of 2017. Policymakers said economic activity in Sweden is increasingly strong, but assess that it will take longer before inflation stabilizes around 2 percent. The repo rate is now not expected to be raised until mid-2018, which is slightly later than in the previous forecast.

Excerpts from the Statement by the Executive Board of the Riksbank:

Growth around the world is increasing in line with the Riksbank's earlier forecasts. The global economy is in a phase with increasingly strong industrial activity and rising global trade. However, considerable political uncertainty is prevailing in several parts of the world, creating risks for economic developments.

Swedish economic activity is good and is expected to strengthen further over the next few years. Inflation has shown a rising trend for some years, but it is now expected to take longer before it stabilises around 2 per cent. The collective agreements signed so far on the labour market indicate that cost pressures in the economy will rise more slowly than expected. The inflation forecast is somewhat lower for 2018 and 2019.

The Executive Board has decided to hold the repo rate unchanged at −0.50 per cent and to extend the purchases of nominal government bonds by SEK 7.5 billion and the purchases of real government bonds by SEK 7.5 billion. At the end of 2017, the purchases will thus amount to a total of SEK 290 billion, excluding reinvestments. Until further notice, maturities and coupon payments will also be reinvested in the government bond portfolio. The Executive Board moreover assesses that the repo rate needs to be held at the current low level for a quarter longer than was assumed in February. The first repo-rate increase is now expected to be made in the middle of 2018. The repo rate path also reflects the fact that there is still a greater probability of the rate being cut than of it being raised in the near term.

The Executive Board is still prepared to make monetary policy more expansionary if the upward trend in inflation were to be threatened and confidence in the inflation target weakened. All of the tools that the Riksbank has described earlier can as always be used if necessary.

Sweden Keeps Key Rate At -0.5%, Extends Bond Buying

Riksbank | Joana Taborda | joana.taborda@tradingeconomics.com
4/27/2017 7:44:21 AM