Sweden Leaves Rates Steady, Cuts Inflation Forecasts

The central bank of Sweden held its benchmark interest rate at -0.5 percent on February 14th 2018, in line with market expectations, saying the economic activity in Sweden is strong and inflation is close to the 2 percent target. However, inflation forecasts for 2018 were revised down to 1.7 percent from 2 percent. Policymakers also reinforced that slow repo rate rises are set to be initiated during the second half of 2018.
Riksbank | Joana Taborda | joana.taborda@tradingeconomics.com 2/14/2018 8:51:17 AM
The central bank also lowered inflation forecasts for 2019 to 2.6 percent from 2.8 percent but left 2020's unchanged at 3.1 percent. GDP growth is seen at 2.8 percent in 2018, slightly below earlier estimates of 2.9 percent. For 2019, growth is seen higher at 1.8 percent (1.7 percent earlier estimated) and for 2020 it was left unchanged at 2.1 percent. 

Excerpts from the Statement by the Executive Board of the Riksbank:

For inflation to remain close to target going forward, it is important that economic activity continues to be strong and has an impact on price development, and that the Swedish krona does not strengthen too quickly. Monetary policy therefore still needs to be expansionary.

In light of this, the Executive Board has decided to hold the repo rate unchanged at −0.50 per cent. The forecast for the repo rate is unchanged since December and indicates that slow increases are set to be initiated during the second half of this year. The Riksbank's net purchases of government bonds amount to just over SEK 310 billion, expressed as a nominal amount. Until further notice, redemptions and coupon payments will be reinvested in the bond portfolio.

According to the Riksbank's forecast, the appropriate time is approaching to slowly begin raising the repo rate. But it is important not to raise the rate too early. Economic activity is strong and inflation has been close to 2 per cent for some time, but the lower inflationary pressures create uncertainty over how inflation will develop going forward. It is also important that the krona does not appreciate too quickly. It has taken a long time to bring inflation and inflation expectations back to 2 per cent, and the uncertainty surrounding the development of inflation means that monetary policy needs to proceed cautiously. If conditions were to change, the Executive Board is, as before, prepared to implement further monetary policy easing.

Sweden Leaves Rates Steady, Cuts Inflation Forecasts