Riksbank Lifts QE, Holds Negative Rate

Sweden's central bank expanded its asset purchase programme and kept its negative interest rate unchanged to take on the risk of currency appreciation and cool inflation.

The Executive Board of the Riksbank decided to expand the quantitative easing by SEK 45 billion during the second half of 2016, so that the purchases will total SEK 245 billion at the end of 2016.

Deputy Governor Cecilia Skingsley preferred to keep bond purchases unchanged at the April meeting.

"With continued expansionary monetary policy abroad, there is a risk that the krona will appreciate earlier and faster than in the forecast," the bank said. "This could dampen growth and inflation in Sweden and affect confidence in the inflation target."

Although inflation is rising, it is expected to undershoot the target in 2016, the bank noted.

Riksbank also maintained the repo rate at -0.50 percent. The bank said that the rate will start to be raised slowly in the middle of 2017, when CPIF inflation is expected to be close to 2 percent.

The bank had lowered the rate by 0.15 percentage points at its prior meeting in February.

There is still a high level of preparedness to make monetary policy even more expansionary if this is needed to safeguard the inflation target, the bank said today.

Inflation had doubled to 0.8 percent in March from 0.4 percent in February. The bank expects inflation to rise to 1 percent this year, instead of 0.7 percent projected in February. Meanwhile, the forecast for 2017 was downgraded to 1.9 percent from 2.1 percent.

The bank upgraded its GDP outlook for 2016 to 3.7 percent from 3.5 percent, while lowering the projection for 2017 to 2.7 percent from 2.8 percent.

In an extra session in January, the board awarded Governor Stefan Ingves, and the First Deputy Governor Kerstin af Jochnick, powers to "instantly intervene" in the foreign exchange market when necessary.

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