Sweden: Riksbank holds rate at zero percent
December 16, 2014
At its 15 December meeting, the Central Bank (Riksbank) decided to hold the repo rate at zero percent, which was in line with market expectations. As in previous statements, the Bank noted that the global economy has continued to recover, although developments at country levels have been varied. According to the Bank, the US and UK economies have continued to expand at a robust pace, whereas the Euro area economy has remained subdued. Meanwhile, China, Japan, and Russia, which are important export markets for Sweden, have also been posting weak performance.
The Bank explained that the Swedish economy is continuing to improve, although GDP growth was slower than normal in the third quarter due to sluggish consumption and exports. Moreover, the Bank stated that, “the confidence indicators are in normal levels, which indicates growth in line with the historical average over the coming quarters.”
Regarding price developments, the Bank mentioned that, “the very low CPI inflation rate is partly due to household mortgage expenditure having fallen, which in turn is due to a gradually lower repo rate.” However, even disregarding the effect of falling interest rates, inflation is still far below the Bank’s target of 2.0%. The Bank pointed out that inflation is likely to remain at low levels in 2015 due to low energy prices and weak domestic demand.
Considering the low global energy prices, declining inflation expectations and subdued domestic demand, the Bank decided to maintain the repo rate at zero percent for a somewhat longer period than was forecast at October’s meeting. The Bank stated that, “monetary policy needs to remain very expansionary for inflation to rise towards the target.” Increases in the repo rate will only begin in the second half of 2016, if inflation is close to the 2% target.
Finally, the Riksbank mentioned that it is preparing further measures that can be used to make monetary policy even more expansionary. Such measures, if needed, could be presented and take effect at the next monetary policy meeting.
Author: Cecilia Simkievich, Economist