Sweden Leaves Key Rate Steady at -0.5%


The central bank of Sweden left its benchmark repo rate unchanged at -0.5 percent on September 7th 2016 as widely expected, saying the inflation is rising and the economy is developing strongly but there's still considerable uncertainty abroad. Policymakers added that will likely not start raising rates until the second half of next year.

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

The international recovery is proceeding at a moderate rate. Economic policy uncertainty continues to be high, among other reasons due to the result of the British referendum. Economic signals following the referendum result have not been clear-cut and it is still too early to draw any clear conclusions regarding the effects.

Supported by the expansionary monetary policy, the Swedish economy has strengthened rapidly and activity is expected to continue to be strong over the next few years. CPIF inflation has shown a rising trend since 2014 and is now just below 1.5 per cent. The situation on the labour market has continued to improve and unemployment is falling. These developments will continue to have an effect on inflation with some time lag. Conditions are thus good for a continued rise in inflation.

The prospects for economic activity and inflation in Sweden remain largely unchanged since the monetary policy meeting in July and now, like then, the assessment is that a continued expansionary monetary policy is needed to maintain the rising trend in inflation.

Not until the second half of 2017 does the Executive Board consider it to be appropriate to begin slowly increasing the repo rate, when inflation is expected to be close to 2 per cent. In accordance with previous decisions, purchases of nominal and real government bonds will continue so that these amount to SEK 245 billion at the end of 2016. Until further notice, maturities and coupon payments on the holdings in the government bond portfolio will be reinvested.

There are several factors that create uncertainty in the inflation forecast. These include international developments, among others the effects of the result of the British referendum and weaknesses in the European banking system. Another factor is the development of the krona. The Executive Board therefore remains, as before, highly prepared to make monetary policy even more expansionary if necessary, even between the ordinary monetary policy meetings. Monetary policy needs to be expansionary to safeguard the role of the inflation target as nominal anchor for price-setting and wage formation. But the low interest rate levels also entail risks, such as increased household indebtedness. To achieve long-term sustainable development in the Swedish economy, these risks need to be managed via targeted measures within macroprudential policy, housing policy and fiscal policy.

Riksbank | Joana Taborda | joana.taborda@tradingeconomics.com
9/7/2016 8:54:08 AM