Sweden: Riksbank holds repo rate steady and hints at tightening monetary policy
July 4, 2017
At its 3 July monetary policy meeting, the Riksbank decided to hold the repo rate steady at the record low of minus 0.50% in a move that market analysts had expected.
July’s monetary policy decision is a reflection of the Bank’s commitment to stabilize inflation around the 2% target against a backdrop of sturdy domestic and international economic activity and decreased risks of setbacks despite continued global economic and political uncertainty. The Riksbank, however, finds itself in an awkward limbo: inflation is stabilizing near its target, but house prices are running away and household debt levels are at a record-high level. Moreover, pressure to return to a period of normalized rates is building as the U.S. Federal Reserve tightens policies, while the Bank of England and the European Central Bank have hinted at ending their ultra-loose stances.
The Riksbank struck a similar tone in its accompanying statement, stating that it is less likely that rates will be cut in the near-term and a rate hike is expected in the middle of 2018. While a rate cut is unlikely, it is not off the table and the Bank stated that, “the fact that inflation has recently been slightly higher than expected […] does not rule out repo rate cuts in the period ahead.” Expansionary policy is necessary to preserve the role of the inflation target as an anchor for price-setting and wage formation, according to Riksbank.
The next meeting is scheduled for 6 September.
Author: Jan Lammersen, Economist