Riksbank hikes policy rate by 25 bps

The Swedish central bank, Riksbank, hiked the repo rate by 25 basis points to 0.0 percent, as was anticipated. Moreover, the central bank hinted that the repo rate will remain at zero for 2020 and 2021.

The Riksbank’s decision to hike was motivated by the fact that the inflation has been close to the target rate of 2 percent since the beginning of 2017 and that the central bank “assesses that conditions are good for inflation to remain close to the target going forward”. Furthermore, Swedish economy is going from a “stronger-than-normal cycle to a more normal situation”, said Riksbank.

The central bank highlighted that “an interest rate of zero percent, in combination with large holdings of government bonds, means that monetary policy will remain expansionary and thereby create the conditions for inflation to remain close to the target”.

Meanwhile, the central bank kept the rate path unchanged from the October report, hinting at unchanged repo rate at zero percent up to and including first quarter of 2022 and with an end-point at a mere 0.13 percent in the fourth quarter of 2022. The QE program was the same as well, as anticipated.

Economic forecasts were little change as anticipated. The Riksbank highlights that overall economic developments have been consistent with the central bank’s forecasts. The inflation forecast is downwardly revised because of stronger SEK.