Sweden’s central bank ventured into uncharted territory as it cut its main interest rate to a record low and delayed tightening plans into 2016 in a bid to jolt the largest Nordic economy out of a deflationary spiral.
“The Swedish economy is relatively strong and economic activity is continuing to improve,” the Stockholm-based bank said in a statement. “But inflation is too low.” The benchmark repo rate was lowered to zero from 0.25 per cent, the third reduction in less than a year.
The Riksbank said it won’t raise rates until mid-2016 compared with a September forecast for the end of 2015. The “assessment is that the repo rate needs to remain at this level until inflation clearly picks up,” the Riksbank said in a statement. “It is assessed as appropriate to slowly begin raising the repo rate in the middle of 2016.”
The krona slid 0.8 per cent to 9.33 per euro earlier. The move follows calls from former board members, politicians and economists to do more to prevent deflation from taking hold. Consumer prices have dropped in seven of the past nine months and inflation has stayed below the bank’s 2 per cent target for almost three years.
Governor Stefan Ingves, who's also chairman of the Basel Committee on Banking Supervision, has been reluctant to lower rates out of fear of stoking a build-up in consumer debt. Ingves raised the benchmark rate quickly after the financial crisis showed signs of easing in 2010.
Bloomberg
