Riksbank Sees Repo Rate At Zero In Coming Years

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Sweden’s central bank left its key interest rate unchanged at zero and maintained asset purchases and liquidity provisions, and reiterated that the rate will remain at the current level in the coming years in the backdrop of the high uncertainty surrounding the economic outlook due to the coronavirus pandemic.

The repo rate has been at zero since January when it was hiked by 25 basis points. The bank left the rate steady for a fifth straight session.

The latest projections from the bank showed the repo rate remaining at zero through the third quarter of 2023.

“The Executive Board assesses that the combination of measures taken by the Riksbank during the spring and summer is the most effective way of achieving this,” the central bank said in a statement.

“The Riksbank will therefore continue to make asset purchases and offer liquidity within all of the programmes launched so far this year.”

The central bank said there is a need for extensive economic policy support, both fiscal and monetary, over a long period of time.

Policymakers are constantly evaluating the combination of appropriate monetary policy measures constantly and will be adjusted to economic developments.

The bank said it is prepared to continue the use of the tools at its disposal to provide support to the economy and inflation.

The repo rate can also be cut if this is assessed to be an effective measure, particularly if confidence in the inflation target were to be threatened, the Riksbank said.

The benchmark rate was last reduced in February 2016, by 15 basis points to -0.50 percent.

Currently, the deposit rate is at -0.10 percent and the lending rate is at 0.10 percent.

While the Swedish economy has begun to recovery from the Covid-19 induced slump, the path is long and fraught with uncertainty, the bank noted.

In its latest projections, the bank expects the economy to shrink 3.6 percent this year versus 4.5 percent predicted earlier. Next year, GDP is forecast to grow 3.7 percent versus 3.6 percent seen earlier.

However, the growth outlook for 2022 was cut to 3.7 percent from 4.1 percent.
The projections showed inflation, both headline and CPIF, remaining below the 2 percent target through 2022.


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