Money in Sweden

Sweden - Money

Riksbank leaves the repo rate unchanged in February

At its 12 February monetary policy meeting, the Central Bank left the repo rate unchanged at 0.00%, where it has been since it was raised from minus 0.25% on 19 December 2019. The decision came as no surprise to market analysts, given the Riksbank said in December “the repo rate is expected to remain at zero per cent in the coming years”.

Inflation with a fixed interest rate (CPIF)—the Riksbank’s preferred measure of inflation—was 1.7% in December, which was unchanged from the previous month and comfortably within the Central Bank’s tolerance band of 1.0%–3.0%. Regarding the outlook, the Riksbank slashed its CPIF forecast for this year to 1.3% from 1.7% in December due to lower energy prices. For 2021 and 2022, the Central Bank left its CPIF forecasts unchanged at 1.7% and 1.9%, respectively, suggesting it sees this year’s inflationary dip as temporary. In terms of GDP growth, the Riksbank tweaked its forecasts for this year, next year and 2022 up by 0.1 percentage points each, raising them to 1.3%, 1.8% and 2.0%, respectively. Regarding risks, the Central Bank cited the coronavirus outbreak as a source of economic uncertainty.

In sum, the Riksbank concluded that the inflation and GDP outlooks were “largely unchanged” in February from December. Therefore, no immediate monetary policy change was deemed necessary and “the repo rate is expected to remain at zero per cent during almost the entire forecast period” up to 2022. Commenting on the currency implications of the Riksbank’s latest monetary policy meeting, James Smith and Petr Krpata of ING said it was a “non-event” as the “projected long-term stability of interest rates (with a possible renewed easing should the economic prospects deteriorate) continues to make SEK an unattractive currency”.

FocusEconomics panelists expect the repo rate to end 2020 at 0.00% and 2021 at minus 0.05%.