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Sweden Monetary Policy September 2018

Sweden: Riksbank keeps rates unchanged in September

At its 6 September 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, following the official end of the Bank’s QE program in December 2017.

The Riksbank’s decision came as CPIF inflation—the Bank’s preferred measure, which assumes a fixed interest rate—has remained around the 2% target in recent months. However, this is partly because of higher energy prices, and underlying price pressures have remained mild despite strong domestic economic activity. In addition, the European Central Bank has yet to tighten its monetary stance. An early rate hike by the Riksbank could therefore cause the krona to appreciate against the euro, making it harder to meet the inflation target. Against this backdrop, the Bank refrained from making immediate monetary policy changes in September.

The Bank gave clear forward guidance in its communiqué, stating that interest rates will be “held unchanged at the monetary policy meeting in October, and then raised by 0.25 percentage points either in December or February”. Notably, this implies a delay compared to the “towards the end of the year” guidance stated in July. Regardless of the timing, the coming monetary policy tightening is likely to be implemented in a gradual manner to avoid a sharp currency appreciation.

In terms of the economic outlook, the Riksbank hiked its GDP forecasts for both 2018 and 2019 from those penciled in at its last monetary policy meeting in July. GDP growth is now expected to reach 2.9% in 2018, up from 2.5%, and 2.0% in 2019, up from 1.9%. The CPIF inflation forecast for 2018 was revised from 2.1% to 2.2%, while the forecast for 2019 was left unchanged at 2.1%.

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