The Riksbank spent the latter half of this year reversing a course that had sought to... Read More
The repo rate will be kept at zero until the second half of 2016 when inflation, excluding mortgage costs, hits its 2 percent target, the Stockholm-based bank said today. The rate will average zero in the fourth quarter next year and 0.5 percent in the fourth quarter 2016, it predicted.
“The Riksbank is also preparing further measures that can be used to make monetary policy more expansionary,” it said. “Such measures, were they necessary, could be presented at the next monetary policy meeting.”
The world’s oldest central bank this year backtracked on increases made in 2010 and 2011 after coming under attack from economist including Nobel laureate Paul Krugman for failing in its mission. It entered uncharted territory with a zero rate in October, which has so
far failed to spur price growth as surveys show inflation expectations continue to sink. Consumer prices dropped for a fourth month in November, on an annual basis, and a number of economists are calling for further measures.
Doing More
“They will probably have to do more already at their next meeting such as possibly trying to delay the timing of the first rate increase, a negative interest rate for fine-tuning operations or negative interest rate,” said Knut Hallberg, an analyst at Swedbank AB. “But the hurdle for bond purchases and long loans is higher. That would take a significant worsening between now and February.”The krona gained 0.2 percent against the euro and traded at 9.4867 as of 11:54 a.m. local time.
The Riksbank spent the latter half of this year reversing a course that had sought to prevent excessive easing from fueling a housing boom and credit growth. Governor Stefan Ingves and his board have since clarified that reaching the bank’s 2 percent inflation target is the primary goal.
Any first move no would be to continue to postpone a first rate increase, Ingves said today at a press conference. The bank is looking at four unconventional measures should it be needed, including asset purchases, lending to banks and a negative interest rates, ranked in no particular order. Currency interventions would be a last resort, he said.
The Criticism
The bank lowered rates in July by half a point following criticism it was neglecting its inflation mandate. Some board members haven’t excluded the possibility of cutting rates to below zero, outlined as a possible scenario by their former colleague, Lars E. O Svensson, who along with Nobel laureate Paul Krugman has been among the bank’s fiercest critics since quitting its board last year.Plunging oil prices are now exacerbating the Riksbank’s failure to meet its inflation target. Household 12-month inflation expectations dropped to zero in November from 0.4 percent the prior month, according to a November survey from the National Institute of Economic Research.
The Norwegian central bank last week unexpectedly cut its main rate for the first time in almost three years while the European Central Bank has signaled further measures are needed to stimulate the euro-area economy next year.
Sweden is also undergoing its worst political crisis since the 1950s. The government this month said it plans to hold the first snap election since 1958 after failing to push its budget through parliament.
Adding to the mix is tighter regulation. Consumers are facing tougher mortgage amortization rules after Sweden said it will take steps as early as next year to stem record-high private debt loads.
The bank today largely kept its growth forecasts unchanged, predicting 2.6 percent growth next year and 3.3 percent in 2016. It lowered its repo rate forecast for 2017 to an average 1.1 percent from 1.4 percent.
“The low repo rate, together with rising demand from abroad, is expected to lead to an increase in economic activity in Sweden in the years immediat
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