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Sweden Monetary Policy April 2018

Sweden: Riksbank keeps rates unchanged in April, signals further delay of rate hikes until the end of year

At its 26 April monetary policy meeting, the Riksbank decided to keep the monetary policy rate unchanged at a record low of minus 0.50%. It also upheld its previous decision to keep reinvesting redemptions and coupon payments in the Bank’s bond portfolio “until further notice”. This means that the Bank’s holdings of government bonds will keep expanding slightly for the time being despite the official end of the Bank’s QE program in December 2017. Moreover, the Bank revised down its forecast for the future path of the repo rate somewhat as price pressures remain muted.

The Riksbank’s decision came as inflation reached the 2.0% midpoint of its target range in March, mainly due to the combined effect of a weaker currency and higher energy prices. Indeed, the strong influence of energy fluctuations on the headline inflation reading means that underlying core price pressures remained subdued in the period. Indeed, underlying inflation undershot the Riksbank’s expectations, despite healthy demand conditions in the economy, with low unemployment and robust growth observed in recent months. This core inflation weakness supported the Bank’s decision to stay put for now, and it was also a main factor influencing the evolution of its forward guidance.

Whereas the Bank previously indicated that the repo rate would start rising in the second half of the year, the April meeting saw a further delay in the expected timeline of rate hikes, with the Bank now announcing that interest rates would start rising “towards the end of the year”. This tightening is likely to be slow and gradual, to avoid raising rates substantially faster than the ECB and avert a strong appreciation of the krona.

Sweden Interest Rate Forecast

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