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The Swedish central bank, Riksbank, kept its repo rate on hold at -0.5 percent during its meeting on Wednesday, as widely expected by the market. Also, it kept its QE program unchanged. The Executive Board has assessed that there “will be a longer delay until the repo rate begins to be raised”.
The Swedish central bank has maintained its short-term easing bias and the first hike is not expected to be seen in the third quarter of 2017. The Riksbank also lowered the end-point. It mentioned that it will continue to purchase government bonds during second half of 2016.
The Swedish central bank stated that the economic activity of the country is continuing to bolster; however there is significant uncertainty regarding economic developments overseas. This has increased due to the Brexit vote. The Riksbank, in its statement, mentioned that a highly “expansionary monetary policy is needed to provide support to the Swedish economy and rising inflation”.
It projects that the global economic activity will continue to bolster; however, at a decelerating rate as compared to anticipated earlier. Riksbank stated that the domestic economic activity has strengthened rapidly and that inflation is witnessing a rising trend. Economic activity is expected to keep on improving, added Riksbank. This, in turn, creates the conditions for inflation to continue accelerating.
The Riksbank has revised down its macro projections for growth and inflation for next year. It expects CPIF inflation to average 1.5 percent in 2016 and 1.8 percent in 2017, as compared with the earlier forecasts of 1.4 percent and 2 percent respectively. The economy is not projected to grow 3.6 percent this year and 2.2 percent next year, downwardly revised from 3.5 percent in 2016 and 3 percent in 2017.
However, inflation in Sweden is unlikely to reach its target rate during the forecast horizon, which is late-2017, noted Nordea Bank in a research report. Riksbank is expected to keep its rates on hold for the rest of 2016 and also throughout 2017.
As inflation is unlikely to reach its target rate in the forecast horizon, additional easing measures cannot be excluded, added Nordea Bank. There, risks are skewed more towards easing.
