Riksbank keeps policy on hold, marginally revises up inflation forecast for next year

The Swedish central bank, Riksbank, kept its policy on hold today, on par with expectations. The central bank kept the repo rate unchanged at -0.50 percent, while the bond purchases are planned to carry on until December 2016. The Riksbank kept the repo rate path unchanged too.

The Swedish central bank appears to be satisfied with the development in recent months. The SEK has traded considerably weaker than expected in July and therefore the central bank’s SEK forecast was altered accordingly. In spite of this, inflation projection was revised upwards just marginally for the next year.

The bank projects CPIF inflation to average 1.5 percent this year and 1.9 percent next year, revised from 1.5 percent and 1.8 percent respectively. Core inflation is projected to reach 1.6 percent in 2016 and 1.8 percent next year. Meanwhile, the Swedish economy is expected to grow 3 percent this year and 2.4 percent next year, downwardly revised from the earlier forecast of 3.3 percent and 2.5 percent respectively.

The Riksbank’s decision today was expected as the outlook for inflation has not changed significantly since the July meeting. Going forward, the Riksbank is regarded as nearly done with easing, said Nordea Bank in a research note. The central bank is expected to announce a minor extension of its government bond purchasing program in the first half of 2017 during its meeting in October. More specifically, the Riksbank is expected to purchase SEK 15 billion index-linked bonds.

“Furthermore, we neither expect further repo rate cuts nor other easing measures”, added Nordea Bank.