Sweden: Riksbank keeps rates unchanged in February
At its 13 February monetary policy meeting, the Riksbank decided to keep the monetary policy rate unchanged at a record low of minus 0.50%. It also announced that it will continue reinvesting redemptions and coupon payments from its bond portfolio until further notice. This means that the Bank’s holdings of government bonds will continue to increase temporarily, even though the QE program ended in December 2017.
The Bank’s decision came after inflation remained comfortably within the 1.0%–3.0% tolerance range in January, albeit slightly below the central 2.0% target. On the demand side, although the economy remains in good health—job creation continues at pace, the PMI is elevated, and firms and consumers are optimistic—there are no signs of overheating. House prices, which had increased sharply during 2015 and 2016, fell in Q4 of last year.
The Bank provided clear forward guidance in its communiqué, reiterating its expectation that interest rates will begin to rise in the second half of the year. However, any tightening is likely to be slow and moderate, particularly as the Riksbank revised down its inflation forecast for 2018 given slower-than-expected wage growth. The Bank is also likely to avoid tightening substantially more than the ECB, in order to avoid a strong appreciation of the krona.