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Sweden Monetary Policy July 2021

Sweden: Riksbank maintains monetary policy at July meeting; upgrades growth outlook for 2021

At its meeting on 1 July, the Riksbank left its monetary policy unchanged, maintaining its key repo rate at 0.00% and continuing its asset purchasing program.

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 second half of 2021. As such, the Bank continues to have 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 staying unchanged from April’s meeting at SEK 700 billion.

The Riksbank also provided updated forecasts for GDP and inflation for the coming years. The GDP growth outlook was upgraded to 4.2% year-on-year in 2021, rising from 3.7% in the April report, while the forecast for 2022 inched up slightly to 3.7% (April report: +3.6% yoy). Meanwhile, expectations for inflation with a fixed interest rate (CPIF) were also revised upwards: It is now seen at 1.8% in 2021, rising from 1.5% in the April report, before easing to 1.7% in 2022 (April report: 1.4%).

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”. As such, 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:

“A rate cut cannot be ruled out if the inflation target is threatened going forward. However, a less expansionary monetary policy is also on the table should the inflationary pressure be persistently above target. In that respect, the risk picture is somewhat more symmetrical than previously. […] The time for an increase in the rate path is approaching. While we are not there yet, it will be a topic of discussion in the upcoming monetary policy meetings during the autumn (September and November).”

The next monetary policy announcement will be published on 21 September.

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