Stockholm (Ekonamik) – On Wednesday, February 13, Riksbanken, the Swedish Central Bank, announced it would hold the policy repo rate at -0.25%. The central bank held SEK 355 billion in Swedish government debt at the end of January. International developments since the last meeting also caused it to revise its GDP forecast for 2019 downwards.
At the previous meeting of the Riksbanken, on 20 December 2018, the Executive Board raised the repo rate from -0.5% to -0.25%, because “inflation and inflation expectations have become established at around 2%,” Riksbanken’s target. The Riksbanken measures price inflation in through a measure of CPI called CPIF, which excludes “the effect of changes to mortgage rates”. This exclusion is motivated by the fact that the repo rate strongly influences mortgage rates.
In its February 2019 report, Riksbanken mentioned its “forecast indicates that the next rate rise will probably occur during the second half of 2019.” Annual average repo rates are expected to reach -0.2%, 0.3% and 0.8% in 2019, 2020 and 2021, respectively. This is in line with forecasts from the December 2018 report. However, GDP forecasts have been revised downwards to 1.3% from 1.5% for 2019 and to 1.9% from 2% for 2020.
Source: Riksbanken Monetary Policy Report, February 2019
Despite the official use of a 2% CPIF growth rate target since 2017, the data seems to suggest that given a constant level of inflation at that level, the Riksbanken will continue to increase its policy rate in response to rises in CPI inflation.
At the end of January, the Riksbank’s government bond holdings amounted to close to SEK 355 billion. “The Executive Board will return at its monetary policy meeting in April to the question of how to manage future principal payments,” according to the Monetary Policy report of February 2019. Finally, Riksbanken did not extend the mandate that facilitates rapid intervention in foreign exchange markets created in 2016.
The minutes from the monetary policy meeting are scheduled to be published on February 22.
The next monetary policy meeting of the Riksbanken is scheduled for 24 April 2019.
Picture © Riksbanken
