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Financial News: Sweden Reiterates Tightening Bias

Sweden Reiterates Tightening Bias

07/03/2019 - 08:49:00 (RTTNews)

(RTTNews) - Sweden's central bank maintained its negative interest rate and policymakers reiterated tightening of policy by the end of this year or early next year, while major central banks around the world are planning additional stimulus.

The Executive Board of Riksbank decided to hold the repo rate unchanged at -0.25 percent, as widely expected. The repo rate was last hiked in December in an unexpected move, the first increase since July 2011. Swedish interest rates entered negative territory in early 2015.

The bank said the repo rate will be increased again towards the end of the year or at the beginning of next year, unchanged from the previous announcement in April.

James Smith, an ING economist said "while we don't expect the Riksbank to follow the ECB into policy easing any time soon, we aren't convinced the Riksbank will increase interest rates either - or at least, not as soon as the central bank's guidance suggests."

Riksbank is set to keep rates on hold for the foreseeable future, the economist added.

The central bank noted that the risks concerning international developments may have a bearing on the economic outlook and inflation prospects in the domestic economy.

If the conditions for inflation change were to change, monetary policy will be adjusted, the bank said.

Policymakers also decided that the central bank will purchase government bonds for a nominal amount of SEK 45 billion, from July 2019 to December 2020.

The central bank forecast inflation to rise to 2.2 percent in 2020 from an estimated 1.8 percent this year. The forecast for 2019 was revised down from 2 percent and that for 2020 from 2.3 percent.

The economy is projected to expand 1.8 percent this year and 1.6 percent in 2020. In April, the bank had forecast 1.7 percent growth in 2019 and 1.9 percent in 2020.

On household indebtedness, the bank said Sweden is sensitive to changes in interest rates and higher unemployment due to huge debts. The bank urged measures in housing and taxation as well as macroprudential policy to address the structural issues on the housing market.

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