Sweden’s central bank cut its repo rate into negative territory and launched a programme of quantitative easing.
The Riksbank lowered its repo rate to minus 0.10 per cent from zero. It also announced that it would buy 10 billion kronor in government bonds with maturities of up to five years. All the measures were taken in an attempt to stem a deflationary spiral.
“These measures and the readiness to do more at short notice underline that the Riksbank is safeguarding the role of the inflation target as a nominal anchor for price setting and wage formation”, Sweden’s central bank said in a statement.
Headline inflation has been negative for most of the past two years. The Swedish central bank’s inflation target is 2 per cent.
By cutting rates, the Riksbank has joined the likes of the Danish central bank, the European Central Bank (ECB) and the Swiss National Bank (SNB), which have eased monetary policy recently.
On February 5, Nationalbank cut its deposit rate by 25 basis points to a record low of minus 0.75 per cent, the same level as Switzerland’s central bank. The Danish central bank’s target is to maintain a stable krone exchange rate against the euro. The krone is permitted to trade within 2.25 per cent of an exchange rate of 7.46 krone per euro. Nationalbank spent 106.3 billion krone defending the currency peg in January.
Denmark has seen huge inflows of money in the wake of the SNB’s decision to abandon its defence of the franc’s peg to the euro on January 15, and the ECB’s announcement of a large-scale sovereign bond-buying programme on January 22.
The Riksbank’s latest move may put pressure on neighbouring central banks to cut rates as well. Norway is likely to cut interest rates at its next monetary policy meeting in March.
photo: Sippeangelo / flickr.com / CC BY-SA 2.0
