Swedish Riksbank holds course, no rush to exit pandemic policies

September 21, 2021

By Simon Johnson

STOCKHOLM (Reuters) – Sweden’s central bank kept policy unchanged on Tuesday and said it expected its key interest rate to remain at zero in the coming few years, despite a recent up-tick in inflation.

Sweden’s economy is back to its pre-pandemic size and with public restrictions coming to an end, growth is expected to remain strong.

Fiscal and monetary policy, however, remain ultra-loose and the Riksbank gave little sign it is in a hurry to change course.

“Monetary policy needs to remain expansionary for inflation to be lastingly close to the target going forward,” the central bank said in a statement.

Tweaking policy, it said lending facilities that were launched during the pandemic will be closed immediately and pre-pandemic collateral requirements reinstated at the end of the year.

The central bank said it expected to end asset purchases at the end of this year and keep its balance sheet more or less unchanged during 2022, in line with its previous guidance.

Analysts in a Reuters poll had forecast no change in rate policy or plans for the balance sheet.

NORWAY FIRST

With the effects of the pandemic ebbing, central banks around the world are facing tough decisions about when to start weaning economies off emergency support amid uncertainty about whether high inflation readings are signs of longer-term price pressure or just temporary effects.

Norway is likely to be the first among the G10 group of developed economies to pull the trigger on Sept. 23, beginning a series of rate hikes.

The U.S. Federal Reserve could begin reducing its bond purchases later this year.

In Sweden, inflation hit 2.4% in August, above the 2% target.

The Riksbank said inflation was “expected to become temporarily higher than 2 percent in the coming year, before falling back again”.

It said it could pursue a less expansionary monetary policy “if inflation were to risk overshooting the target significantly and persistently”.

(Editing by Nick Macfie)

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