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Sweden Monetary Policy February 2022

Sweden: Riksbank holds key rate at zero at February meeting; hints at earlier rate rise

At its meeting on 9 February, the Riksbank decided to keep its key repo rate at 0.00%. Meanwhile, it confirmed that it will purchase SEK 37 billion (around USD 4 billion) of bonds as part of its net asset purchasing scheme during Q2 to compensate for maturing assets.

The decision to hold rates reflected moderate inflation expectations—inflation is projected to track close to the Bank’s 2.0% target rate in the long term—with currently-elevated readings attributed to transitory factors. Moreover, solid GDP growth in Q4 gave the Bank further space to maintain its accommodative stance and provide liquidity to continue bolstering activity.

Looking ahead, the Riksbank softened its dovish stance somewhat in its communiqué, stating that “the forecast for the repo rate indicates that it will be raised in the second half of 2024”, amending the timing from “in late 2024” in its November report. In line with this, the vast majority of our panelists expect the Bank to maintain the rate at 0.00% through 2022.

That said, Knut Hallberg, Andreas Wallström and Glenn Nielsen, analysts at Swedbank, see rates being raised earlier:

“We now expect that the repo rate will be hiked already in Q4 of this year, followed by two more hikes next year: One in Q2 and one in Q4. We also believe that the Riksbank will speed up the reduction in the securities holdings and only buy SEK 24 billion of bonds in Q4 2022 and SEK 8 billion in Q4 2023. The holdings of T-bills will be phased out in H2 2022.”

The next monetary policy announcement will be published on 28 April 2022.

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