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Sweden Monetary Policy September 2021

Sweden: Riksbank leaves monetary policy unchanged at September meeting; upgrades growth outlook for 2021

At its meeting on 20 September, the Riksbank made no adjustments to its monetary policy, maintaining its key repo rate at 0.00% and leaving its asset purchasing program unchanged.

The decision reflected moderate inflation expectations—inflation is projected to track close to the Bank’s 2.0% target rate in the long term—and a brightening economic outlook for the final stretch of 2021, giving the Bank space to maintain its accommodative stance and provide liquidity to bolster activity. To this end, the Bank continued its asset purchasing program—due to run until the end of the year—with the total nominal amount remaining at the SEK 700 billion set in April’s meeting.

The Riksbank also provided updated forecasts for GDP and inflation for the coming years. The GDP growth outlook was upgraded to 4.7% year-on-year in 2021, rising from 4.2% in the July report, while the forecast for 2022 inched down slightly to 3.6% (July report: +3.7% yoy). Meanwhile, expectations for inflation with a fixed interest rate (CPIF) were more significantly revised upwards: It is now seen at 2.3% in 2021, rising from 1.8% in the July report, before easing to 2.1% in 2022 (April report: 1.7%).

Looking ahead, the Riksbank reiterated its dovish stance in its communiqué, stating that the “repo rate is expected to remain at zero per cent for the entire forecast period, which extends until the third quarter of 2024”. In line with this, all of our panelists expect the Bank to maintain the rate at 0.00% for the rest of the year.

Reflecting on the outlook for the repo rate, Knut Hallberg, Cathrine Danin and Glenn Nielsen, analysts at Swedbank, commented:

“When the rate path will be extended at the November monetary policy meeting, we believe that a rate hike is likely during Q4 2024. In the November meeting, we expect the Riksbank to also communicate more details on the bond purchases for the first quarter of 2022, but holdings in 2022 will be more or less unchanged the next year. All in all, a subtle signal of less expansionary monetary policy to come.”

The next monetary policy announcement will be published on 25 November.

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