Stockholm / AFP
Sweden’s central bank on Thursday cut its key interest rate by 15 basis points to a new all-time low of -0.5 percent, citing the risk of slowing inflation and falling confidence in its monetary policy.
The bank moved its key rate into negative territory in February 2015 in a bid to encourage spending amid three years of stagnant prices despite strong growth.
“The economy continues to strengthen but inflation is expected to be lower during 2016 than previously forecast. The period of low inflation will therefore be longer,” the Riksbank said in a statement.
“This increases the risk of weakening confidence in the inflation target and of inflation not rising towards the target as expected,” it said.
While the bank bases its monetary policy on an inflation target of 2.0 percent, it said it expected prices to rise by just 1.3 percent this year, lower than its previous forecast of 1.7 percent.
Sweden’s other economic indicators remain encouraging however: 3.5 percent growth is forecast for 2016, which is expected to help bring down the jobless rate by 0.6 points to 6.8 percent.
The bank set no limit for how low it was willing to take its repo rate, recalling there was “still scope” to reduce it further and the bank was “ready to do more.”
The Riksbank’s medium-range forecast for the rate for early 2017 was 0.53 percent.
The bank reiterated that it was ready to intervene on the foreign exchange market if the Swedish currency, the krona, appreciates so quickly that it would threaten an upturn in inflation.
If it were to do so, that would be the first time it intervened since 2002, when the bank did so with the opposite aim of supporting the currency.