Riksbank keeps monetary policy unchanged, repo rate likely to be kept on hold going forward

The Swedish central bank, Riksbank, kept its monetary policy unchanged today, as expected. The rate path is flat at 0.0 percent throughout the forecast horizon. Nevertheless, the endpoint of rate path is as early as the first quarter of 2021. Usually, the path has a forecast horizon of three years. The shorter path highlights the unusual circumstances. In the February report, the endpoint was 0.18 percent in the first quarter of 2023, noted Nordea Bank in a research report.

The central bank kept the size of its QE program the same, but provided new details regarding the implementation: SEK 18bn government bonds will be bought between 1 May and 30 September while SEK 85bn of covered bonds will be bought in the same period.

The decision to keep the interest rate on hold was unanimous. Riksbank underlined that it is ready to take action if needed. The central bank lowered its economic forecasts. The GDP is now expected to fall 6.9 percent this year, but is likely to grow 4.6 percent in 2021. Unemployment is expected to peak at 9.4 percent this summer, whereas the CPIF inflation is likely to come in at 0.4 percent. The annual average for CPIF has been cut to 0.6 percent for this year from 1.3 percent projected in the February report.

According to Riksbank, the monetary policy will be “adapted to the circumstances where the entire toolbox can be used, which includes the potential scaling‐up of various measures and cutting the repo rate”.

“We keep our forecast of an unchanged repo rate also going forward. A rate cut can’t be ruled out later this year, although the probability for that has decreased somewhat. Moreover, the QE programme may very well be extended, which could be announced in July or whenever the bank sees a need for it (thus also between scheduled monetary policy meetings). Otherwise, the conclusion is that the Riksbank can’t do much more than it has already done”, added Nordea Bank.