Sweden Monetary Policy July 2020

Sweden

Sweden: Riksbank holds monetary policy steady, upgrades outlook for 2020

September 22, 2020

At its monetary policy meeting on 22 September, the Riksbank kept its monetary policy unchanged, holding its key repo rate at 0.00%, and pledging to continue its asset purchasing program.

The Central Bank maintained a cautious tone in its communiqué, noting that “the effects of the pandemic on the global economy are expected to be prolonged, and future developments are fraught with risks of setbacks, in both the short and longer term”. Furthermore, the Riksbank noted that “the situation on the labour market is worrying, with high unemployment as a result of the sharp decline in economic activity in the spring”. As such, the Bank saw it necessary to maintain its accommodative stance to help keep rates low and provide liquidity to bolster the gradual recovery in the economy. To this end, it will continue with the expanded SEK 500 billion program of government, municipal and mortgage bond purchases announced in its June update. The program is set to run until the end of June 2021, with just over SEK 190 billion of purchases made as of the September update.

The Bank did, however, upgrade its GDP estimates for 2020, hiking its forecast to minus 3.6% from minus 4.5% in the June report. Furthermore, it sees a marginal increase in growth for 2021, up to 3.7% from 3.6% in the June forecast. Inflation expectations also inched up in the short term, with the CPIF forecast increasing to 0.5% for 2020 (June: 0.4%). For 2021, the Bank sees CPIF at 1.2% (June: 1.4%).

The Riksbank’s decision followed the government’s announcement of a historically large budget for 2021 on 21 September. The budget totals SEK 105 billion—around USD 12 billion and equivalent to 2% of GDP—with the majority focused on stimulating the economy, bolstering the welfare state and supporting green initiatives. Furthermore, tax cuts aim to reduce the pressure on household budgets and promote investment. The budget has the backing of the government’s main political allies, and is expected to pass through the Riksdag before the end of the year. FocusEconomics panelists currently see the fiscal deficit for 2020 at 6.2% of GDP, before falling to 2.9% of GDP in 2021.

Looking ahead, the Riksbank reiterated its dovish stance, stating that “there will be comprehensive monetary policy stimulus in the form of low interest rates and a large amount of liquidity for the foreseeable future”. Moreover, it said that it “is prepared to continue use the tools at its disposal to provide support to the economy and inflation. The repo rate can also be cut if this is assessed to be an effective measure, particularly if confidence in the inflation target were to be threatened”.

Reflecting on the outlook for the repo rate, James Smith and Petr Krpata, economists at ING, noted:

“[While] the situation in the jobs market has now stabilised (new redundancy notices have fallen back to normal levels after a spike in the spring), the subdued outlook for wages has contributed to a marginal reduction in the Riksbank’s CPIF forecasts for the next couple of years. Still, what all of this does at least signal is that further easing, at least in the form of a return to negative interest rates, is unlikely. […] All in all, rates are unlikely to move in either direction for quite some time.”

The next monetary policy announcement will be published on 26 November.

FocusEconomics panelists expect the repo rate to end 2020 at minus 0.02% and 2021 at minus 0.02% again.


Author:, Economist

Sample Report

Looking for forecasts related to Monetary Policy in Sweden? Download a sample report now.

Download

Sweden Monetary Policy Chart


Sweden Monetary Policy September 20 20

Note: Riksbank Repo Rate in %, eop.
Source: Riksbank.


Sweden Economic News

More news

Search form