Swedish cenbank keeps rates unchanged and lowers rate path
July 07 2016 01:13 AM
The bank lowered the repo rate path saying it expected to start tightening policy in the second half of 2017.


Sweden’s central bank left its benchmark repo rate unchanged at -0.50% yesterday but delayed the timing of future rate hikes as a result of increased economic uncertainty following Britain’s vote to leave the European Union.
The bank lowered the repo rate path saying it expected to start tightening policy in the second half of 2017, later than its previous forecast of mid-2017, after an unprecedented period of negative rates aimed at reviving flat-lining consumer prices.
Growth in Europe is likely to be hit by the Brexit vote while Britain — Sweden’s fourth-biggest export market and the destination for about 7% of Swedish goods — also faces a slowdown.
“There is considerable uncertainty over economic developments abroad and this has increased as a consequence of the result of the British referendum on the EU,” the Riksbank said in a statement.
The bank added that so far the impact on the Swedish economy had been limited.
Analysts had been unanimous in seeing rates on hold and had forecast the central bank would soften its rate outlook.
“The Riksbank had already before clearly signalled that it has moved from being proactive to reactive,” Nordea said in a note.”Today’s decision was very much in line with that thinking.
The SEK has been weaker than the Riksbank’s forecast from April and, thus, there was no need for any immediate action.”
While the Brexit vote has heightened economic uncertainty, it has also weakened the crown currency, a relief for the Riksbank which has been worried a sharp appreciation could push down already low inflation.
Stripping out the effect of interest rate changes on mortgages, inflation has undershot the central bank’s 2% target for more than five years.
Consumer prices have started to pick up but disappointed in May and price pressures are expected to remain low.
With the effects of the Brexit vote yet to impact the economy, growth is outpacing most of Europe and many — including the central bank — are worried that ultra-low rates are stoking a housing bubble.
But the Riksbank said it still prepared to go further.
“The Executive Board remains highly prepared to make monetary policy even more expansionary, if necessary, even between the ordinary monetary policy meetings,” the bank said.”There is still scope to cut the repo rate further.”
Deputy governor Martin Floden entered a reservation against the bank’s decision to extend its mandate for interventions on the foreign exchange market.

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