Sweden: Riksbank keeps rate in negative territory and expands bond-buying stimulus
April 29, 2015
At its monetary policy meeting on 28 April, the Central Bank (Riksbank) decided to keep the repo rate at minus 0.25%. The Bank introduced negative interest rates for the first time ever in February and made a further cut to the current level in March to counteract persistently-weak inflationary pressures. The Bank’s decision to keep rates in negative territory and expand its bond-buying stimulus program comes amid signs that this unprecedented monetary policy experiment is having a positive impact on the economy and starting to push up inflation.
In its accompanying statement, the Bank explained that the Swedish economy is in good shape and the labor market continues to improve. Moreover, inflation has started to rise from the low levels observed in recent months. The weakening of the krona has stoked price increases for imported goods, while prices for services are also on the rise. Inflation expectations have also increased, and should continue to do so as the economy improves further. The Bank explained that low interest rates for households and companies are helping to increase demand in the economy and fuel inflation.
In addition to keeping the repo rate in negative territory, the Bank declared that it would expand the bond-purchasing program first introduced in February to ensure that inflation continues to rise. The Bank announced that it would, “extend the purchases of nominal government bonds by a further SEK 40-50 billion.” These purchases, which will be made between May and September, push the total value of the Bank’s program to SEK 80-90 billion (USD 9.5-10.7 billion).
Finally, Riksbank reiterated that it is fully committed to ensuring that inflation rises and that it is prepared to make further moves without notice. This includes the possibility of additional rate cuts and an extension of government bond purchases. Moreover, the Bank stated that, “slow increases in the repo rate from minus 0.25 per cent are not expected to begin until the second half of 2016.”
Author: Carl Kelly, Economist