Sweden Cuts Rates Further Into Negative Zone; Signals More Action
February 11 2016 - 1:55AM
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Sweden's central bank cuts its key interest rates deeper into
negative zone on Thursday in another attempt to bring krona down
and push inflation to the 2 percent target.
The bank also signaled that it was willing to take rates lower
from the current negative levels, among other steps such as an
extension of government bond purchases and foreign exchange market
interventions if the krona appreciates quickly.
The Executive Board of the Riksbank unexpectedly decided to cut
the repo rate by 0.15 percentage points to -0.50 percent, on
Thursday.
The bank was expected to keep its rate unchanged at -0.35
percent. The bank last lowered the repo in July, when it cut the
rate from -0.25 percent.
The period of low inflation will be longer than expected earlier
and any upturn in price growth will be uneven, the bank said.
Purchases of government bonds will continue for the first six
months of this year as planned and it will reinvest maturities and
coupons from the government bond portfolio until further
notice.
The bank said there is still scope to cut the repo rate further.
"The Riksbank is also analyzing whether it is possible within the
operational monetary policy framework to implement other measures
to underpin repo rate cuts," the bank said.
The bank also expressed its willingness to extend security
purchases by buying nominal and real government bonds and to
intervene on the foreign exchange market if the krona appreciates
so quickly as to threaten the upturn in inflation.
In an extra session in January, the board awarded Governor
Stefan Ingves, and the First Deputy Governor Kerstin af Jochnick,
powers to "instantly intervene" on the foreign exchange market when
necessary.
The Riksbank is still likely to need to take further action as
there is little sign that inflation will pick up any time soon,
Jessica Hinds at Capital Economics, said.
Swedish monetary policy should relate to several other central
banks' expansionary monetary policy. Otherwise, the krona exchange
rate would be at risk of strengthening at a faster rate than
forecast, which would make it harder to push up inflation, the bank
noted.
The bank lowered its inflation forecast for 2016 to 0.7 percent
from 1.3 percent and that for next year to 2.1 percent from 2.5
percent.
Riksbank also trimmed its growth forecasts for 2016 and 2017 by
0.1 percentage point. The growth is expected to be 3.5 percent in
this year and 2.8 percent next year.
As the economy continues to expand and house prices keep rising,
there is widespread concern that expansionary measures would cause
a bubble.
At the meeting, Governor Ingves and three others favored a rate
cut, while Martin Floden and Henry Ohlsson voted against the
move.
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