In the shadow of the US Federal Reserve, Sweden's Riksbank has raised its repo rate to -0.25% from -0.5%, citing inflation and inflation expectations of around 2%. It is the first time in seven years that the bank has tightened its key rate.
In a statement, the bank said: "The global economy, which has grown rapidly in recent years, is now entering a phase of more subdued GDP growth, which is in line with the Riksbank's earlier forecasts. Cost pressures are gradually rising abroad, and monetary policy is moving in a less expansionary direction. However, there is still considerable uncertainty over global economic developments, not least with regard to the effects of Brexit and the trade conflict between the United States and several other countries."
"Economic activity in Sweden is still strong, although GDP growth and inflation have been weaker than expected. The employment rate is historically high, companies are reporting major shortages of labour and cost pressures are rising. The strong economic activity has contributed to inflation rising gradually since 2014 and being close to the 2% target in recent years."
"Even though inflation has been lower than expected, the conditions remain good for inflation to stay close to the inflation target going forward. As inflation and inflation expectations have become established at around 2%, the need for a highly expansionary monetary policy has decreased slightly. The Executive Board has therefore decided to raise the repo rate from −0.50% to −0.25%. The inflation forecast assumes that monetary policy stimulation will be decreased slowly."
"It is important that economic activity continues to be strong and has an impact on price increases. With a repo rate of −0.25%, monetary policy is still expansionary and will thereby also continue to support economic activity. The pacing of rate rises in the period ahead will be adjusted according to the development of the economic outlook and inflation prospects. The fact that inflation has been lower than expected recently illustrates that there is uncertainty over the strength of inflationary pressures. The forecast for the repo rate therefore indicates that the next rate rise will probably occur during the second half of 2019. After this, the forecast indicates approximately two rate rises per year by 0.25 percentage points each time. Reinvestments of principal payments and coupons in the government bond portfolio will continue until further notice."
"The low interest rates are exacerbating the risks linked to high and rising household indebtedness, while the fundamental causes of the high indebtedness still remain. It is essential, to ensure that the development of the Swedish economy is sustainable in the long term, that measures are taken in housing policy and taxation policy and that macroprudential policy is designed appropriately."
