Sveriges Riksbank, which has maintained the rate since February 2016, said inflationary pressures are still moderate when energy prices are disregarded and monetary policy needs to remain expansionary to keep economic activity strong as this helps create conditions for higher prices.
"If the economy develops as expected, there will soon be scope to slowly reduce the support from monetary policy," the Riksbank said.
The Riksbank's forecast shows the repo rate will be unchanged at the next board meeting in October and then be raised by 25 basis points either in December or February.
As part of its easy monetary policy, the Riksbank also employed bond purchases, known as quantitative easing, to hold down long-term interest rates starting in February 2015.
The Riksbank said its current holdings of 330 billion Swedish krona in government bonds, with redemptions and coupon payments reinvested in the portfolio for the time being.
"All in all, monetary policy will continued to be expansionary for a long period of time," it said.
While the central bank's forecast for the average repo rate this year was unchanged at -0.50 percent, the quarterly forecast showed that it would also be -0.50 percent in the fourth quarter of this year, down from -0.43 percent in the July forecast, illustrating a slightly lower rate path.
On average in 2019 the repo rate is seen unchanged at -0.10 percent but then a positive 0.4 percent in 2020, slightly lower than the previous forecast of 0.5 percent.
As in July two of the executive board members entered reservations against today's policy decision.
While Deputy Governor Henry Ohlsson wanted an immediate rate hike with reference to strong economic growth, Deputy Governor Martin Floden wanted the repo-rate path to show a likely rate hike in October and communicating this would entail sufficient tightening of policy today.
The overall economic outlook is largely unchanged since the Riksbank's previous monetary policy report in July despite the uncertainty weighing on the global economy from trade tensions.
The outlook for Swedish economic growth this year was raised to 2.9 percent from a previous 2.5 percent and the 2019 forecast to 2.0 percent from 1.9 percent. For 2020 growth is seen unchanged at 2.1 percent.
Sweden's Gross Domestic Product grew 3.3 percent in the second quarter of this year, year-on-year, the same rate as in the first quarter.
Inflation with a fixed interest rate, the central bank's preferred measure, was seen averaging 2.2 percent this year, up from July's forecast of 2.1 percent, and then steady at 2.1 percent next year and 2020, illustrating the prevalence of moderate inflationary pressures worldwide.
Sweden's headline inflation rate was steady at 2.1 percent in July and June.
As in the past, the Riksbank also pointed to the need for the krona's exchange rate to help in its efforts to keep up inflation, signaling that it is quite comfortable with the current krona weakness.
In response to today's dovish policy statement, the krona fell to 9.1 to the U.S. dollar but remains slightly firmer than in August. Compared with the start of this year, the krona is down 10 percent.
Sveriges Riskbank released following statement: (excludes tables)
"Repo rate unchanged at −0.50 per cent
Economic activity in Sweden is strong and inflation is close to the target of 2 per cent. Rapidly rising energy prices have helped to push up inflation. If energy prices are disregarded, inflationary pressures are still moderate. As it is important for economic activity to continue to be strong and have an impact on price growth, monetary policy needs to remain expansionary. The Executive Board has therefore decided to hold the repo rate unchanged at −0.50 per cent. If the economy develops as expected, there will soon be scope to slowly reduce the support from monetary policy. The forecast for the repo rate indicates that it will also be held unchanged at the monetary policy meeting in October and then raised by 0.25 percentage points either in December or February.
Favourable economic activity, Swedish inflation on target
The overall economic outlook remains largely unchanged since the Monetary Policy Report in July. Global economic activity remains favourable, although there is considerable uncertainty over future developments. International inflationary pressure are moderate, but expected to rise going forward. Monetary policy abroad is expansionary.
The Swedish economy has been strong over a long period of time. Inflation is close to the target of 2 per cent, but this is largely due to the rapidly rising energy prices. Different measures of underlying inflation indicate that inflationary pressures are still moderate. However, the strong economic activity creates good conditions for inflationary pressures to rise. CPIF inflation is therefore expected to stay close to the target even when the rate of increase in energy prices slows down.
If developments are as expected – soon scope to slowly reduce support from monetary policyIt is important that economic activity continues to be strong and has an impact on price increases. Monetary policy therefore needs to remain expansionary and the ExecutiveBoard has decided to hold the repo rate unchanged at −0.50 per cent, in line with theforecast in July. If the economy develops as expected, there will soon be scope to slowly reduce the support from monetary policy. The forecast for the repo rate indicates that it will also be held unchanged at the monetary policy meeting in October, and then raised by 0.25 percentage points, either in December or February. The Riksbank’s holdings of government bonds amount to a good SEK 330 billion, expressed as a nominal amount. Until further notice, redemptions and coupon payments will be reinvested in the bond portfolio. All in all, monetary policy will continue to be expansionary for a long period of time.
The overall economic outlook remains largely unchanged since the Monetary Policy Report in July. Global economic activity remains favourable, although there is considerable uncertainty over future developments. International inflationary pressure are moderate, but expected to rise going forward. Monetary policy abroad is expansionary.
The Swedish economy has been strong over a long period of time. Inflation is close to the target of 2 per cent, but this is largely due to the rapidly rising energy prices. Different measures of underlying inflation indicate that inflationary pressures are still moderate. However, the strong economic activity creates good conditions for inflationary pressures to rise. CPIF inflation is therefore expected to stay close to the target even when the rate of increase in energy prices slows down.
If developments are as expected – soon scope to slowly reduce support from monetary policyIt is important that economic activity continues to be strong and has an impact on price increases. Monetary policy therefore needs to remain expansionary and the ExecutiveBoard has decided to hold the repo rate unchanged at −0.50 per cent, in line with theforecast in July. If the economy develops as expected, there will soon be scope to slowly reduce the support from monetary policy. The forecast for the repo rate indicates that it will also be held unchanged at the monetary policy meeting in October, and then raised by 0.25 percentage points, either in December or February. The Riksbank’s holdings of government bonds amount to a good SEK 330 billion, expressed as a nominal amount. Until further notice, redemptions and coupon payments will be reinvested in the bond portfolio. All in all, monetary policy will continue to be expansionary for a long period of time.
Monetary policy needs to proceed cautiously
The Riksbank continues to exercise considerable vigilance as regards the development of inflationary pressures in the economy. The krona exchange rate also has a bearing on inflation, and it is important that the krona develops in a manner compatible with inflation remaining close to the target. In addition, there is still considerable uncertainty regarding international developments. The risks of excessively low inflation merit particular attention, as at the prevailing interest rate levels, excessively low inflation is more difficult to manage than excessively high inflation. If the conditions for inflation were to change, the Executive Board is prepared to adjust monetary policy.
Important to have measures to reduce the risks associated with household indebtedness
The low interest rates are exacerbating the risks linked to high and rising household indebtedness, while the fundamental causes of the high indebtedness still remain. Achieving long-term sustainable development in the Swedish economy therefore requires measures within housing policy, taxation policy and, where necessary, macroprudential policy.
The Riksbank continues to exercise considerable vigilance as regards the development of inflationary pressures in the economy. The krona exchange rate also has a bearing on inflation, and it is important that the krona develops in a manner compatible with inflation remaining close to the target. In addition, there is still considerable uncertainty regarding international developments. The risks of excessively low inflation merit particular attention, as at the prevailing interest rate levels, excessively low inflation is more difficult to manage than excessively high inflation. If the conditions for inflation were to change, the Executive Board is prepared to adjust monetary policy.
Important to have measures to reduce the risks associated with household indebtedness
The low interest rates are exacerbating the risks linked to high and rising household indebtedness, while the fundamental causes of the high indebtedness still remain. Achieving long-term sustainable development in the Swedish economy therefore requires measures within housing policy, taxation policy and, where necessary, macroprudential policy.
Deputy Governor Martin Flodén entered a reservation against the repo-rate path in the Mone- tary Policy Report. He advocated a repo-rate path that indicates it is likely that the repo rate will be raised by 0.25 percentage points at the monetary policy meeting in October, but which coincides with the report’s repo-rate path as from the third quarter of 2019. He thought that the communication of such a repo-rate path would entail sufficient tightening of monetary policy today.
Deputy Governor Henry Ohlsson entered a reservation against the decision to maintain the repo rate at its current level and against the repo-rate path in the Monetary Policy Report. He advocated raising the repo rate to −0.25 per cent with reference to the strong economic growth in Sweden and abroad.
Deputy Governor Henry Ohlsson entered a reservation against the decision to maintain the repo rate at its current level and against the repo-rate path in the Monetary Policy Report. He advocated raising the repo rate to −0.25 per cent with reference to the strong economic growth in Sweden and abroad.
The decision on the repo rate will apply from 12 September 2018. The minutes from the Executive Board’s monetary policy meeting will be published on 17 September. A press conference with Governor Stefan Ingves and Jesper Hansson, Head of the Monetary Policy Department, will be held today at 11 a.m. in the Riksbank. Press cards must be shown. The press conference will be broadcast live on www.riksbank.se."
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