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Sweden Monetary Policy February 2021

Sweden: Riksbank keeps rates and asset purchases unchanged in February

At its meeting on 9 February, the Riksbank kept its monetary policy unchanged, holding its key repo rate at 0.00% and maintaining its asset purchasing program.

The decision came amid a slightly more optimistic tone, with the Bank noting that “the Swedish economy has been more resilient to the second wave of the pandemic than to the first”. Furthermore, the Riksbank commented that “inflation and the real economy have surprised on the upside and the outlook is brighter than it was at the monetary policy meeting in November”. As such, the Bank has space to maintain its accommodative stance and continue providing liquidity to bolster the gradual recovery in the economy. To this end, the Bank continued its asset purchase program—due to run until the end of the year—with the total nominal amount staying at SEK 700 billion, with SEK 100 billion set to be purchased during Q2 2021.

Looking ahead, the Riksbank reiterated its dovish stance in its communiqué, stating that it “will continue to formulate monetary policy so that there is extensive monetary policy support for as long as necessary in order to support the recovery and inflation”, and that “it is entirely possible that the repo rate may be cut, particularly if confidence in the inflation target were under threat”.

Reflecting on the outlook for the repo rate, Knut Hallberg, Andreas Wallström and Robin Ahlén, analysts at Swedbank, commented:

“All in all, today’s minutes confirms our view that the Riksbank [would] rather do too much and for too long than the opposite. However, we continue to expect an unchanged repo rate until 2022, but the risk picture is tilted towards a rate cut in the second half of 2021 and today’s minutes confirms this view.”

This is a view shared by Christian Schnittker and Alexandre Stott, economists at Goldman Sachs, who commented:

“Looking ahead, the Monetary Policy Report reiterated that the possibility of a repo rate cut cannot be ruled out. This option was nevertheless downplayed by a strengthened confidence in the inflation outlook. The MPR argued that the higher-than-expected resilience showed by the economy during the second wave and potential structural changes to trading patterns could provide a basis for higher inflation. […] We expect the Riksbank to remain on hold and keep its other policy levers unchanged for some time to come.” 

The next monetary policy announcement will be published on 27 April.

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