Sweden’s central bank maintained its benchmark interest rate and while it confirmed it still expects to raise the rate in December, it said the outlook for economic growth and inflation in coming years is “very uncertain” and pushed back any further rate hikes to 2022.
As widely expected, Sveriges Riksbank left its benchmark repo rate steady at minus 0.25 percent and confirmed it “will most probably” raise the rate in December to zero percent, only the second time it will have tightened its policy since July 2011.
In December 2018 the Riksbank raised its rate for the first time in 7-1/2 years on solid economic growth and rising inflation, but then pushed back another rate hike to late this year as global economic growth weakened, curbing inflationary pressures.
Although economic growth in Sweden is now slowing, inflation remains close to the Riksbank’s 2.0 percent target and is forecast to remain steady at 1.8 percent this year and 1.9 percent next year, setting up the conditions for the rate hike in December.
But economic activity is now slowing faster than expected, but expansionary monetary policy in many countries is expected to support growth and the Riksbank doesn’t expect a recession and inflation is expected to tick up by 2022.
Free Reports:
Get Our Free Metatrader 4 Indicators - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter
Get our Weekly Commitment of Traders Reports - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.
“However, the development of economic activity and inflation abroad and in Sweden in the coming years is very uncertain, and it is therefor difficult to say, at present, when it will be appropriate to raise the repo rate next time,” the Riksbank said, adding it expects interest rates to be unchanged “for a prolonged period after the expected rise in December.”
Underscoring this uncertainty, the Riksbank said improved economic prospects would justify a higher interest rate but if the economy were to develop less favourably, it “could cut the repo rate or make monetary policy more expansionary in some other way.”
The Riksbank confirmed its decision from April that it is purchasing government bonds worth 45 billion Swedish crown from July this year to December 2020.
In an update to its forecasts, the Riksbank sees the repo rate averaging 0.0 percent in 2020 and 2021, down from 0.2 percent forecast in September, and then rising to 0.1 percent in 2022.
Economic growth is expected to slow to only 1.3 percent this year, down from its earlier forecast of 1.5 percent, and 2.3 percent in 2018.
Sveriges Riksbank issued the following statement:
“After several years of strong economic activity and inflation close to the target of 2 per cent, the Swedish economy is slowing down and the economic conditions are becoming more normal. In recent months, inflation has indeed fallen back, but this was expected and overall, the inflation prospects for the next year are unchanged. In line with the forecast from September, the Executive Board has therefore decided to leave the repo rate unchanged at –0.25 per cent. As before, the forecast indicates that the interest rate will most probably be raised in December to zero percent. Uncertainty over the development of economic activity and inflation abroad and in Sweden is considerable, however. The forecast for the repo rate has therefore been revised downwards and indicates that the interest rate will be unchanged for a prolonged period after the expected rise in December.
Slowdown in global growth
Faster slowdown towards more normal economic conditions
Probable that the repo rate will be raised in December
Uncertainty over economic developments
Important to have measures to mitigate the risks associated with household indebtedness
| 2018 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|
| CPI | 2.0 (2.0) | 1.8 (1.8) | 1.9 (1.9) | 1.8 (2.1) | 2.1 |
| CPIF | 2.1 (2.1) | 1.7 (1.7) | 1.8 (1.7) | 1.8 (1.8) | 2.0 |
| GDP | 2.3 (2.4) | 1.3 (1.5) | 1.2 (1.5) | 1.6 (1.9) | 1.8 |
| Unemployment, per cent | [6.3 (6.3)] | [6.8 (6.6)] | 6.9 (6.7) | 7.0 (6.8) | 7.1 |
| Repo rate, per cent | –0.5 (–0.5) | –0.3 (–0.3) | 0.0 (0.0) | 0.0 (0.2) | 0.1 |
Note. The assessment in the September 2019 Monetary Policy Report is shown in brackets. Statistics Sweden has identified quality flaws in the LFS which mean that the statistics for unemployment in 2018 Q2–2019 Q3 are misleading. The figures directly affected by this are italicised and enclosed in square brackets.
Sources: Statistics Sweden and the Riksbank
| 2019 Q3 | 2019 Q4 | 2020 Q1 | 2020 Q4 | 2021 Q4 | 2022 Q4 | |
|---|---|---|---|---|---|---|
| Repo rate | –0.25 (–0.25) | –0.25 (–0.23) | –0.05 (–0.05) | 0.00 (0.08) | 0.00 (0.24) | 0.13 |
Note. The assessment in the September 2019 Monetary Policy Report is shown in brackets.
Source: The Riksbank
