Sweden Leaves Monetary Policy Unchanged

The central bank of Sweden left its benchmark interest rate at -0.5 percent on October 24th 2018, in line with market expectations, saying the economic activity in Sweden is strong and inflation remains close to the target of 2 percent. However, monetary policy needs to continue to be expansionary for inflation to remain within the target. The central bank added that the repo rate will be raised by 25bps either in December or February.
Riksbank | Gabriela Costa | gabriela.costa@tradingeconomics.com 10/24/2018 7:51:16 AM
Excerpts from the Statement by the Executive Board of the Riksbank:

Global economic developments continue to be positive and in line with the Riksbank's forecasts, even though, for example, developments in Italy and the escalated trade conflict between the United States and China mean that uncertainty over the prospects for the global economy has increased. In the wake of the stronger economic activity, inflationary pressures are expected to continue rising and monetary policy abroad to move in a less expansionary direction.

In Sweden, too, economic developments have been largely as expected and economic activity has been good for a long period of time. The labour market situation is expected to remain strong, even if GDP growth slows down going forward. Inflation increased to 2.5 percent in September, partly as a result of rapidly rising energy prices. Different measures of underlying inflation are lower and inflationary pressures are still assessed to be moderate. However, there are signs that inflationary pressures are rising and the conditions are good for inflation to remain close to the target of 2 percent in the coming years.

The overall picture of the economic outlook and inflation prospects remains largely unchanged since the September Monetary Policy Report. Consequently, in line with the previous forecast, the Executive Board has decided to hold the repo rate unchanged at -0.50 percent. If the economy develops in a way that continues to support the prospects for inflation, the Executive Board assesses that it will soon be appropriate to start raising the repo rate at a slow pace. The forecast for the repo rate is unchanged since the monetary policy meeting in September and indicates that the repo rate will be raised by 0.25 percentage points either in December or February. Reinvestments of principal payments and coupon payments in the government bond portfolio will continue until further notice.

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. It is essential, to ensure that the development of the Swedish economy is sustainable in the long term, that measures are taken in housing policy and taxation policy and that macroprudential policy is designed appropriately.

Sweden Leaves Monetary Policy Unchanged