STOCKHOLM: Sweden's central bank held its benchmark repo rate unchanged at a record low as expected on Tuesday and said it was ready to ease policy further if weak inflation in November proves to be longer lasting.
Three years of mainly flat or falling prices have forced the Riksbank to put aside worries about a red-hot housing market to fight fears of deflation. Benchmark rates have nose-dived as the economy has strengthened, a reversal of normal policy, with the most recent cut, in July, taking the repo rate to -0.35 percent.
Inflation has started to pick up, but the Riksbank remains worried about a reversal as the effects of a weaker crown diminish.
"The Board is ... highly prepared to make monetary policy even more expansionary, even between the ordinary monetary policy meetings," the Riksbank said in a statement.
A majority of analysts in a Reuters poll had forecast the central bank would keep the repo rate unchanged.
If the uptick in inflation flags, the Riksbank said it could cut rates further, purchase more securities and was prepared to intervene in currency markets.
The Swedish crown strengthened on the decision and yields rose.
The dovish message underlines the dilemma the Riksbank has been facing. Sweden's economy grew faster than expected in the third quarter and inflation expectations are moving in the right direction.
Worries that aggressive action by the European Central Bank earlier this month would see the crown strengthen sharply against the euro also did not materialise.
But a tentative uptick in inflation seems to have stalled in November with underlying prices dropping and the Swedish crown has strengthened since mid-year, putting downward pressure on import prices.
Oil prices, at levels not seen since the start of 2009, are adding to worries that inflation may remain subdued.
Comments
Comments are closed.