Sweden: Riksbank cuts rate to zero percent, amid ongoing low-inflation environment
November 7, 2014
At its 27–28 October meeting, the Central Bank (Riksbank) decided to cut the repo rate from 0.25% to zero percent. The decision surprised markets as analysts had expected Riksbank to cut the rate to 0.10%.
The Bank pointed out that the Swedish economy is continuing to improve, mainly due to solid growth in private consumption and housing investment. However, sluggish performance in the Euro area economy will continue to exert downward pressure on an already-weakened external sector. The Bank also stated that, “the labour market will continue to strengthen in the years ahead and there will be a clear fall in unemployment.”
Although economic growth and employment are relatively strong, inflation has persistently stayed below the Bank’s target of 2.0%. This is why the Bank decided to cut the repo rate from 0.25% to zero percent. The Bank pointed out that keeping the repo rate low was essential to pushing inflation back up toward the target. Moreover, Riksbank stated that, “the repo rate needs to remain at this level until inflation has clearly picked up.” According to the Bank, slow increases in the repo rate are expected to begin by middle of 2016 and the rate should reach 1.75% towards the end of 2017.
As mentioned it its previous accompanying statement, the Bank warned again that lower rates will accelerate the trend of household indebtedness and may have negative consequences in the housing market. The Bank called on public authorities to introduce measures and reforms to reduce such risks. The next monetary policy meeting will be held on 16 December.
Author: Cecilia Simkievich, Economist