Sweden’s central bank left its policy rate steady but pushed down the pedal on its asset purchases, as other central banks with rates at the lower bound, by boosting asset purchases and adding corporate bonds to its shopping list to “avoid an unnecessarily prolonged and deep decline in the economy and inflation.”
Sveriges Riksbank, which just escaped almost five years of negative interest rates in December 2019, left its repo rate steady at 0.0 percent and extended the forecast for the rate to remain at this level for another 12 months to the third quarter of 2023.
However, it also said “the repo rate can be cut, if this is assessed to be an effective measure” as it is prepared to use the tools at its disposal to support the economy and inflation.
The Riksbank, which has been engaged in quantitative easing since February 2015 when it began buying government bonds and adopted negative rates, raised its purchases by 200 billion Swedish krona to 500 billion and extended the purchasing period to June 2021 from September 2020.
From October 1 to December 31 this year, the Riksbank said it would be buying government bonds, mortgage bonds and municipal bonds for 100 billion krona and offer weekly purchases of commercial paper of up to a maximum 32 billion.
The purchase of corporate bonds will begin in September, with the amount set at 10 billion krona and run to June 30, 2021. The Riksbank will limit its purchases to less than 70 percent of an individual issuer’s total outstanding volume of commercial paper.
In addition boosting asset purchases, the Riksbank will lower the interest rate on its standing loan facility to 10 basis points over the repo rate from 20 points, cut the rate on weekly extraordinary loans to banks to 0.0 percent from 20 points and offer longer maturities, and extend the maturity on loans to banks for onward lending to companies to 4 years from 2 years, and lower the interest rate supplement if the requirement for onward lending is not met to 10 basis points from 20 points.
“The measures are helping to keep down general interest rates in the economy and to maintain access to low-cost funding” and thus support the economic recovery, the Riksbank said.
Despite robust economic stimulus worldwide in the wake of the Covid-19 pandemic, the Riksbank said developments remain very uncertain and it will take time before the global economy returns to pre-crises activity levels.
Unemployment is expected to continue to rise in Sweden and inflation has fallen and is forecast to remain lower than previously expected.
In an update to its forecasts, the Riksbank cut its forecast for consumer price inflation this year to average 0.4 percent from 1.4 percent seen in February. Due to the uncertainty of the impact of the measures to contain the virus, the Riksbank didn’t publish forecasts in April, as it usually does.
In both 2021 and 2022 inflation is seen averaging 1.4 percent before rising to 1.9 percent by the third quarter of 2023.
Sweden’s economy is forecast to contract by 4.5 percent this year, down from growth of 1.2 percent in 2019, then expand 3.6 percent next year and 4.1 percent in 2022 while unemployment is seen averaging 8.7 percent this year and rise to 9.2 percent in 2021 before easing to 8.3 percent in 2022.
Sweden’s krona, which has risen since mid-March, rose further in response to the continued policy easing to trade around 9.30 to the U.S. dollar, up 0.5 percent this year.
Sveriges Riksbank issued the following press release:
“To avoid an unnecessarily prolonged and deep decline in the economy and inflation, the Executive Board has decided on several measures. The framework for the asset purchases made by the Riksbank since the crisis began is being extended from SEK 300 billion to SEK 500 billion up to the end of June 2021. In September, the Riksbank will also begin purchasing corporate bonds. The Executive Board has further decided to cut interest rates and extend maturities on lending to banks. At the same time, the repo rate is held unchanged at zero per cent. The measures are helping to keep down general interest rates in the economy and to maintain access to low-cost funding. In this way, the Riksbank is providing support to the recovery in the economy and inflation.
Sharp fall in GDP but signs of the beginnings of a recovery
Further measures for continued low interest rates in the Swedish economy
Interplay between policy areas the most effective to alleviate the effects of the crisis
| 2019 | 2020 | 2021 | 2022 | 2023 Q3** | |
|---|---|---|---|---|---|
| CPI | 1.8 (1.8) | 0.5 (1.4) | 1.4 (1.8) | 1.4 (2.1) | 1.9 |
| CPIF | 1.7 (1.7) | 0.4 (1.3) | 1.4 (1.7) | 1.4 (1.9) | 1.8 |
| GDP | 1.2 (1.2) | -4.5 (1.3) | 3.6 (1.8) | 4.1 (2.0) | 2.9 |
| Unemployment, per cent | 6.8 (6.8) | 8.7 (7.0) | 9.2 (7.1) | 8.3 (7.1) | 7.5 |
| Repo rate, per cent | -0.3 (-0.3) | 0.0 (0.0) | 0.0 (0.0) | 0.0 (0.1) | 0.0 |
**Calendar-adjusted GDP growth and seasonally adjusted unemployment in 2023 Q3.
Sources: Statistics Sweden and the Riksbank
| 2020 Q2 | 2020 Q3 | 2020 Q4 | 2021 Q3 | 2022 Q3 | 2023 Q3 | |
|---|---|---|---|---|---|---|
| Repo rate | 0.00 (0.00) | 0.00 (0.00) | 0.00 (0.00) | 0.00 (0.00) | 0.00 (0.08) | 0.00 |
Note: The assessment in the Monetary Policy Report in February 2020 is shown in brackets.
Source: The Riksbank
The following decisions were taken by the Executive Board of the Riksbank yesterday
Asset purchases
- Extend the framework for asset purchases from SEK 300 to SEK 500 billion. Extend the period for purchases to 30 June 2021.
- Within this framework, purchase government bonds, mortgage bonds and municipal bonds for SEK 100 billion between 1 October and 31 December 2020. During the same period, offer weekly purchases of commercial paper up to holdings of a maximum of SEK 32 billion.
- Within this framework, offer to purchase corporate bonds for SEK 10 billion up to 30 June 2021.
These purchases will be initiated in September. - Apply an issuer limit to not own more than 70 per cent of an individual issuer’s total outstanding volume of commercial paper in SEK.
Lending to banks
- Cut the interest rate on the standing loan facility from the repo rate plus 0.2 percentage points to the repo rate plus 0.1 percentage points.
- Cut the interest rate and offer longer maturities on the weekly extraordinary loans to banks.
The interest rate is cut from the repo rate plus 0.2 percentage points to the repo rate.
Loans are offered at maturities of three months and six months. - Extend the maturity on loans to banks for onward lending to companies from two to up to four years.
- Cut the interest supplement that applies if the requirement for onward lending to Swedish companies is not met, from 0.20 percentage points to 0.10 percentage points.
The repo rate
- Hold the repo rate unchanged at 0 per cent.
