Sweden’s Riksbank cuts rates further into negative

FXStreet (Mumbai) - In a surprising move, Sweden’s Riksbank on Wednesday announced a reduction in the Repo rate by 0.15 percentage points to −0.25%. The banks also said it will buy government bonds for SEK 30 billion, to support the upturn in inflation.

The bank said it is seeing signs of inflation having bottomed out, but feels the appreciation of the Krona risks sending inflation lower once again.

The bank’s policy statement says, “The krona has strengthened substantially, mainly against the euro, which is partly linked to the European Central Bank beginning its large asset purchases. At the same time, the Federal Reserve is moving towards its first policy rate increase, which has meant that the dollar has strengthened. It is difficult to assess the continued path for the krona in this environment. If the krona continues to strengthen in the near term, this could break off the upturn in inflation that has begun, so that it fails to rise sufficiently quickly. Low inflation over an even longer period of time increases the risk that long-term inflation expectations will fall and that the role of inflation as nominal anchor in price-setting and wage formation will weaken.

The Board has therefore decided to cut the repo rate by 0.15 percentage points to −0.25 per cent. Moreover, the Riksbank will buy nominal government bonds for the sum of SEK 30 billion, with maturities of up to 25 years. These purchases, which will begin on 26 March and are expected to be completed at the beginning of May 2015, are an extension of the purchases made in February and March.”

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