Sweden slashes rate to zero, sees first rise in mid-2016

    Sweden's central bank cut its benchmark repurchase rate by a further 25 basis points to zero percent and expects to keep the rate at this level until mid-2016 when it plans to start raising the rate to reach 1.75 percent by the end of 2017 when inflation finally reaches the bank's target.
    The Riksbank, which has now cut its rate by 75 basis points this year, also cut its deposit rate to minus 0.75 percent and the lending rate to 0.75 percent while the rate for fine-tuning monetary transactions was set to zero.
   "The low repo rate increases demand in the economy, which contributes to higher inflationary pressures," the Riksbank said, adding:
     "The highly-expansionary monetary policy many also contribute to keeping inflation expectations anchored around 2 percent by sending a clear signal that monetary policy is focused on inflation approached the inflation target."
    The central bank underscored that it planned to retain the interest rate at this unusually low level to boost inflation at a time that economic activity was relatively strong and continuing to improve.
    The Riksbank, which has faced heavy criticism for being slow to cut interest rates in the face of underlying inflation that has been below its target for more than three years, warned that such an extraordinary low rate would increase the risks that households take on more debt and appealed to authorities to take action to manage these risk and reform the housing market.

Sweden holds rate steady, sees first rate rise end-2015

    Sweden's central bank maintained its benchmark repo rate at 0.25 percent and repeated its guidance from July that "it is assessed to be appropriate to begin raising the repo rate towards the end of 2015, when inflation is clearly higher."
    The Riksbank, which slashed its key rate by a larger-than-expected 50 basis points in July in an attempt to boost inflation, said inflation still remains low but had been a little higher than expected and the near-term forecast for inflation had been revised upwards slightly due to the weaker exchange rate of the Swedish krona currency and somewhat higher labour costs.
    The Riksbank, which has been heavily criticized for keeping rates too high despite missing its inflation target for 2-1/2 years, revised up its forecast for headline inflation this year to average zero percent from its July forecast of minus 0.1 percent, but maintained the 2015 inflation forecast at 1.3 percent and trimmed the 2016 forecast to 2.9 percent from a previous 3.0 percent.
   The central bank's forecast for CPIF inflation, which is based on a fixed mortgage rate, was unchanged at 0.6 percent for 2014, but revised up to 1.7 percent in 2015 from 1.6 percent and unchanged at 2.0 percent in 2016.
    The Riksbank targets inflation at 2.0 percent and since the start of 2012, inflation has been below that rate. In 2012 inflation averaged 0.9 percent and zero in 2013.

Monetary Policy Week in Review – Jun 30-Jul 4, 2014: Financial stability takes on growing policy importance

    The response of central banks to financial instability was front and center of global monetary policy last week, with Sweden’s rate cut underscoring how the topic of financial stability has become an integral part of monetary policy since the global financial crises.
    Measures of credit and property prices are likely to become even more central to policy-making in coming years as threats to financial stability worldwide continues to grow unless policy makers start to tackle the ever-growing mountain of debt.
    The Bank for International Settlements (BIS) threw down the gauntlet to central banks on Sunday, calling on monetary policy to be reoriented toward the slow-moving financial cycle and away from reacting to short-term fluctuations in inflation and economic output.
    One of the consequences of the BIS view is that central banks should be ready to tighten monetary policy when financial imbalances start building up, even if inflation appears to be under control.
    The BIS has for years pointed to the dangers from the growing reliance on debt as an engine of economic growth along with ultra-low interest rates and most observers saw the BIS’ annual report as a direct challenge to the current policy stance of major central banks.
    The speech by Janet Yellen, chair of the U.S. Federal Reserve, only three days after the BIS annual meeting in Basel, Switzerland, therefore took on added significance.
    Most observers heard Yellen’s speech as a rejection of the BIS view, referring to her statements that “monetary policy faces significant limitations as a tool to promote financial stability,” and there is no need for “monetary policy to deviate from a primary focus on attaining price stability and maxiumum employment.”
    But on a closer reading, Yellen agrees with many of the points argued by the BIS, an illustration of how the BIS annual report reflects much of the thinking in central banks worldwide.
    Monetary policy has changed since the 2007-2009 financial crises and the belief that central banks should focus narrowly on inflation and then clean up any mess from a financial crises is dead and buried.
    Tackling the threat to a country’s financial stability, whether from domestic or global sources, is now an integral part of monetary policy discussions worldwide, including at the Fed, with central banks using a host of macroprudential measures as the first line of defense.
    But expanding the framework for taking policy decisions to include financial stability in addition to inflation and output takes time.
    “We have made considerable progress in implementing a macroprudential approach in the United States, and these changes have also had a significant effect on our monetary policy discussions,” Yellen said.
    The question is not whether monetary policy should respond to treats to financial stability, the issue that faces policy makers is how to gauge these threats and what the optimal policy tool is.
    As Yellen said, “adjustments in monetary policy may, at times, be needed to curb risks to financial stability.”
    Her current diagnosis is that the threat from growth in nonfinancial credit and leverage in the financial system is much reduced from past years and the reliance on short-term wholesale funding is significantly lower than before the crises.
    That said, Yellen acknowledged increased risk-taking across the financial system that could trigger more macroprudential measures and the importance of keeping an eye on credit creation, losses by borrowers and a worsening of leverage and liquidity.
    “It is therefore important that we monitor the degree to which the macroprudential steps we have taken have built sufficient resilience, and that we consider the deployment of other tools, including adjustments to the stance of monetary policy, as conditions change in potentially unexpected ways,” Yellen said.

    Sweden’s Riksbank has been one of the most active central banks in integrating financial stability and monetary policy decisions, with Yellen pointing to the fact that the Riksbank has acknowledged keeping its policy rate “slightly higher” due to financial stability concerns.
    But last week the Riksbank concluded that inflation had now fallen so much that it outweighed the threat from rising household debt and cut its rate by 50 basis points – twice the expected amount.
    As the Riksbank is no longer in charge of overall financial supervision and regulation, all it could do was to appeal to other policy makers to take steps to dampen households’ demand for credit.

LIST OF LAST WEEK’S CENTRAL BANK DECISIONS:

• Australia holds rate, still sees period of stable rates
• Romania holds rate, cuts RRR on foreign FX deposits
• Poland holds rate, says next move to depend on data
• Sweden slashes rate 50 bps on lower inflation forecast
• ECB maintains key rates, including negative deposit rate
• ECB to publish details of meetings from Jan. 2015

TABLE WITH LAST WEEK’S MONETARY POLICY DECISIONS:

COUNTRY	MSCI	NEW RATE	OLD RATE	1 YEAR AGO
AUSTRALIA	DM	2.50%	2.50%	2.75%
ROMANIA	FM	3.50%	3.50%	5.00%
BULGARIA	FM	0.03%	0.05%	0.02%
POLAND	EM	2.50%	2.50%	2.50%
SWEDEN	DM	0.25%	0.75%	1.00%
EURO AREA	DM	0.15%	0.15%	0.50%

    This week (Week 28) 10 central banks will decide on monetary policy, comprising the countries of Ghana, Croatia, Indonesia, Malaysia, South Korea, United Kingdom, Serbia, Peru, Mexico and Mozambique.

TABLE WITH THIS WEEK’S MONETARY POLICY DECISIONS:

COUNTRY	MSCI	DATE	CURRENT  RATE	1 YEAR AGO
GHANA		9-Jul	18.00%	16.00%
CROATIA	FM	9-Jul	5.00%	6.25%
INDONESIA	EM	10-Jul	7.50%	6.50%
MALAYSIA	EM	10-Jul	3.00%	3.00%
SOUTH KOREA	EM	10-Jul	2.50%	2.50%
UNITED KINGDOM	DM	10-Jul	0.50%	0.50%
SERBIA	FM	10-Jul	8.50%	11.00%
PERU	EM	10-Jul	4.00%	4.25%
MEXICO	EM	11-Jul	3.00%	4.00%
MOZAMBIQUE		11-Jul	8.25%	9.00%

    

    www.CentralBankNews.info

Sweden holds rate, greater chance of near-term rate cut

    Sweden's central bank maintained its benchmark repo rate at 0.75 percent, as expected, but said monetary policy had to remain expansionary to boost inflation and the future path of the repo rate had "been adjusted down somewhat and reflects a greater probability of a repo-rate cut in the near term compared with the assessment made in February."
    However, the Riksbank added that the repo rate was still expected to remain at its current level for around a year before it should be raised in response to higher inflation.
    In December last year the Riksbank cut its repo rate by 25 basis points and pushed back the time frame for any rate rise until early 2015 from late 2014 and in February it confirmed this guidance while it trimmed its 2014 growth forecast.
    The Riksbank has now revised upwards its 2014 growth forecast but revised down its 2015 forecast. The inflation forecast for this year and 2015 has been revised down.
    "As economic activity strengthens, inflationary pressures are expected to rise," the bank said, adding it was uncertain how quickly inflation will rise, particularly because it has been weaker than expected.

Sweden maintains rate, 2014 prospects still "good"

    Sweden's central bank maintained its benchmark repo rate at 0.75 percent, as expected, and confirmed that it does not expect to raise the rate until the beginning of 2015 with the outlook for the economy and inflation in line with the bank's forecast from December.
    The Riksbank, which cut its rate by 25 basis points in December 2013 and pushed back the time frame for any rate rise until early next year from late this year, also said the "recent financial market turbulence has had limited contagion effects and is not expected to prevent a recovery in the global economy," with growth in the United States remaining high and the euro area recovering, albeit slowly.
    The Riksbank described the prospects for the Swedish economy as "good," with the labour market improving and confidence among households and companies rising to levels that are better than normal.
    Despite the improving economy, inflation is expected to remain low in the coming year, which means that the repo rate "needs to remain at a low level until inflation picks up and the recovery is on firmer ground," the Riksbank said, adding that "slow increases in the repo rate will not begin until the start of 2015."

Sweden cuts rate 25 bps, pushes back rate rise until 2015

    Sweden's central bank cut its benchmark repo rate by 25 basis points to 0.75 percent and pushed back any rate rises until early 2015 from late 2014 due to lower-than-expected inflation.
    The Riksbank, which last cut its rate in December 2012, said economic activity was largely as forecast but inflationary pressures were expected to remain much lower than forecast in October and the cut in the repo rate should help boost inflation towards the bank's 2 percent target by 2015.
    "Slow increases in the repo rate are not expected to begin until the start of 2015," the Riksbank said, adding that "the risks linked to high household indebtedness remain, but the low inflation rate justifies cutting the repo rate."
    In October the bank said it first expected to raise the repo rate by the end of 2014, forecasting an average rate of 1.15 percent by the fourth quarter of 2014 and 2.24 percent end-2015. In its new forecast, the central bank forecast an average rate of 0.71 percent in the fourth quarter of next year, 1.88 percent in the fourth quarter of 2015 and 2.88 percent in fourth quarter 2016.
    Sweden's postponement of any rise rise to next year comes less than two weeks after Norway's central bank delayed any rate rise by a year to the summer of 2015, citing low inflation, low growth and declining house prices.