Sweden: Riksbank keeps rates unchanged amid ongoing low-inflation environment
September 4, 2014
At its 3 September monetary policy meeting, the Central Bank (Riksbank) announced that it would keep the repo rate at 0.25%. The decision was in line with market expectations. The Riksbank cut the repo rate aggressively from 0.75% to 0.25% at its previous meeting in July amid growing concerns over notably weak inflationary pressures.
The Bank stated that economic activity is strengthening, owing mainly to, “a strong household sector and rising housing investment.” However, lower growth in Europe will put pressure on an already weakened export sector. The Bank also pointed out that the labor market developed better than expected during the summer months.
Despite some signs of mild economic growth, the Riksbank acknowledged that inflation remains low. The Bank decided that holding the repo rate low is necessary to help push inflation back up toward the target of 2.0%. The Riksbank explained that, “the low repo rate will contribute to demand increasing in the economy, which will cause inflation to rise.” At this point, the Bank expects inflation to reach its target at the beginning of 2016 and therefore reiterated that it will not raise rates until the end of 2015.
The Bank also warned again that lower rates will accelerate the trend of rapidly-increasing household debt and may have negative consequences in the housing market. The Bank called on the government and other public authorities to introduce measures and reforms to reduce such risks. The next monetary policy meeting will be held on 27 October.
Author: Carl Kelly, Economist