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Sweden Monetary Policy November 2021

Sweden: Riksbank leaves key rate unchanged at November meeting; ends net asset purchases

At its meeting on 24 November, the Riksbank decided to keep its key repo rate at 0.00%. Meanwhile, it signaled that it will conclude its net asset purchasing scheme at the end of the year.

The decision reflected strong economic activity and moderate inflation expectations—inflation is projected to track close to the Bank’s 2.0% target rate in the long term—giving the Bank space to maintain its accommodative stance and provide liquidity to continue bolstering activity. To this end, although the Bank will stop its asset purchasing program at the end of 2021—having fully utilized the program’s envelope of SEK 700 billion during the year—it will instead reinvest a nominal amount of SEK 37 billion during Q1 2022 to compensate for forthcoming principal payments due on the bonds in its asset portfolio.

The Riksbank also provided updated forecasts for GDP and inflation for the coming years. The GDP growth outlook was held at 4.7% year-on-year in 2021, matching the September report, while the forecast for 2022 inched up slightly to 3.8% (September report: +3.6% yoy). Meanwhile, expectations for inflation with a fixed interest rate (CPIF) were relatively unchanged: It is seen at 2.3% in 2021, matching the September report, before easing to 2.2% in 2022 (September report: 2.1%).

Looking ahead, the Riksbank reiterated its dovish stance in its communiqué, stating that “the forecast for the repo rate path indicates that the repo rate will be raised in late 2024”. In line with this, the vast majority of our panelists expect the Bank to maintain the rate at 0.00% through 2022.

That said, Knut Hallberg, Carl Nilsson and Glenn Nielsen, analysts at Swedbank, see rates being raised earlier than indicated:

“We stick to our assessment that the Riksbank will tighten its policy earlier than the decision suggested: We expect a tapering of asset purchases to begin no later than the second half of 2022 and that the [asset] holdings will be wound down at a faster rate in 2023, and we forecast a repo rate hike during the second half of 2023.”

The next monetary policy announcement will be published on 10 February 2022.

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