Sweden’s central bank held its key interest rate unchanged and boosted its asset purchases on Wednesday, making its policy more expansionary as it prepares for a possible December expansion of the European Central Bank’s stimulus.
The Riksbank left its benchmark, the repo rate, unchanged at -0.35 percent for a second straight session. The move was in line with economists’ expectations. The bank last lowered the repo in July, when it cut the rate from -0.25 percent.
Lowering its interest rate path, the bank said an initial raise in the repo rate will be deferred by approximately six months compared with the previous assessment.
The Executive Board also decided to extend the government bond purchasing programme by an additional SEK 65 billion. Purchases will total SEK 200 billion by the end of June 2016.
After leaving rates and the size of asset purchases unchanged, ECB President Mario Draghi strongly hinted that the bank may boost its stimulus in December as policymakers are increasingly concerned over the persistence of negative inflation.
The ECB is ready to adjust its EUR 1.1 trillion asset purchase programme, which was launched in March, when needed. The programme is set to run until September 2016, but the bank has said it is ready to extend it beyond that if needed or until inflation returns to its aim.
One of the stimulus boosts economists expect the ECB to announce in December is an increase in the size of the monthly asset purchases under the APP to EUR 80 billion from EUR 60 billion. Further reduction in interest rates is also possible after Draghi said that policymakers did discuss a deposit rate cut.
The Riksbank said it “still has a high level of preparedness to quickly make monetary policy even more expansionary if the inflation prospects deteriorate, even between the ordinary monetary policy meetings.”
“The Executive Board’s assessment is that monetary policy needs to be more expansionary in order to underpin the positive development in the Swedish economy and safeguard the robustness of the upturn in inflation,” the bank said in a statement.
Stating that it was ready to do more to stabilize inflation around 2 percent, the bank said it is ready to take more measures including reducing the repo rate, purchase more assets, intervene in the forex market and launch a bank lending scheme for businesses.
The Riksbank also reckoned that inflation is likely to be a little lower in 2016 and 2017 compared to the previous assessment. Underlying inflation is still expected to be close to 2 percent next year.
“We think the Riksbank will do more and as soon as December,” Capital Economics economist Jessica Hinds said. “It will be concerned about buying up even more of the domestic government bond market so a repo rate cut to -0.50% is more likely to temper any appreciation of the krona.”
The material has been provided by InstaForex Company – www.instaforex.com