Riksbank moves to shore up inflation, cuts repo rate

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Sweden’s central bank has announced a further -0.1% cut to its repo rate to -0.35%, arguing that there are risks to its efforts to inject more inflation into Sweden’s economy.

The Riksbank cited uncertainty abroad, including around Greece, alongside ongoing currency appreciation as key threats.

The bank was targeting a return to 2% CPIF inflation by the end of 2015, but today said: “If the exchange rate were to be too strong in relation to the Riksbank’s forecast, prices of imported goods would increase more slowly and demand in the Swedish economy would fall. Such a development would risk breaking the upturn in inflation that has now begun.”

Additional purchases of SEK45bn worth of government bonds will start in September and run through the end of 2015, the bank also announced, as part of its overall strategy to maintain an increase in inflation.

These efforts will persist. Looking ahead, the bank also published figures forecasting a negative repo rate in place through the third quarter of 2016.

Olle Holmgren, fixed income macro strategist at SEB, said:  “The board turned out to be significantly more concerned over the continued low inflation expectations, signs of a stronger krona and the implications of the Greece problems than expected. The repo rate was therefor cut by 10bps, to -0.35%, and the repo rate path signals another 6bps cut in September, while at the same time keeping the possibility open for cutting in between meetings.

“With a high probability for continued turbulence in Greece and uncertainty over how strong the upturn in inflation predicted during the autumn will be, the risk that the repo rate will be cut again later this year is high.”

Martin Enlund, chief analyst within Nordea´s Global Strategy Team, said: “Today’s Riksbank decision was clearly softer than expected with both a big QE expansion and another chunky rate cut. The Riksbank is also signalling high probability of a further rate cut (the rate path bottoms at -41bp). In my eyes, this decision was the correct one given a strict interpretation of the inflation target. Not doing anything today would have invited further SEK strength and would in a sense have been a policy mistake.”

“It’s interesting to note that the Riksbank kept to its rhetoric from April. In the April MPR the Riksbank worried about the Fed’s hiking pace and its implicit impact on USDSEK (& hence on the trade-weighted krona). The soft repricing of the USD is thus one reason why the Riksbank did more today.”

“This decision will help EUR/SEK remain range-bound between 9.20 and 9.40, with the overall direction of the EURSEK determined by EURUSD. Today’s decision should also remind markets that it is the trade-weighted SEK that matters. The krona is currently smack dab at the Riksbank’s new KIX forecast.”

The next Riksbank repo rate announcement is expected by 3 September, following a monetary policy meeting on 2 September.




Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

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