Sweden: Riksbank lowers repo rate to 1.25%
September 6, 2012
At its 6 September monetary policy meeting, the Central Bank (Riksbank) cut its repo rate by 25 basis points to 1.25%, in a move that surprised market analysts, who had expected rate to be left unchanged. According to the Bank, the decision aims to prevent inflation from being too low in the medium term. Riksbank stated that Sweden's GDP growth has been "unexpectedly strong so far this year", supported by solid growth in exports of services. However, the Central Bank warned that negative developments in the Euro area would inevitably dampen demand for Swedish exports, thus weakening domestic economic activity going forward. Regarding price developments, Riksbank acknowledged that "inflationary pressures in the Swedish economy were low", which partially explains the need for expansionary monetary policy. In addition, the Bank pointed to the rapid appreciation of the krona, which further reduced inflationary pressures. Indeed, the Bank expects inflation to remain below its target of 2.0% in both 2012 and 2013.