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Sweden Monetary Policy April 2019

Sweden: The Riksbank maintains accommodative monetary policy stance in April, signals delayed rate hike and slower tightening

At its 25 April monetary policy meeting, the Riksbank left the repo rate unchanged at minus 0.25%, which was in line with market expectations. The Central Bank, however, struck a much more dovish tone in its April meeting than in its prior meeting, citing weak inflation in Sweden and abroad, low interest rates in major economies and an uncertain global backdrop as the principal reasons behind its cautious stance.

In March, inflation came in at 1.8%, representing the third consecutive month below the Bank’s 2.0% target. Moreover, the Riksbank now projects inflation to be softer both this year and over the medium-term than it had previously forecast. Likely feeding into these toned-down inflationary expectations were the Bank’s concurrently-trimmed economic growth forecasts.

Notably, the Bank signaled at its April meeting that accommodative monetary conditions would be in place for a longer period of time than what was expected in February. Consequently, the Bank now expects the next rate hike to be towards the end of the year or the start of next year, as opposed to in H2 2019. Furthermore, the Bank noted the pace of monetary policy normalization will likely be more gradual than previously thought—the Bank now sees the repo rate averaging 0.04% in Q2 2020 (February forecast: 0.23%) and 0.42% in Q2 2021 (February forecast: 0.73%).

In addition, the Riksbank announced its plan to continue quantitative easing, with purchases of government bonds at a nominal value of SEK 45 billion from July 2019 until December 2020. Two deputy governors, however, voiced concerns over the risks associated with additional purchases and whether they would meaningfully contribute to attaining the monetary policy target.

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