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Free AccessMNI POLICY: Riksbank Minutes Show Members Open To Later Cut
-Riksbank Board Members See Rate Cut Supporting Recovery, No Cut Now
By David Robinson
LONDON (MNI) - Riksbank Executive Board members agreed that a rate cut
could be deployed to support the economy when its recovery began rather than
during the present sharp downturn, minutes of its Apr. 27 monetary policy
meeting showed, without highlight any deep divisions.
The board backed the roll out of asset purchases and left the repo rate at
zero percent, having only lifted it out of negative territory at the end of 2019
after almost five years in negative territory.
-Board members "did not want to rule out the possibility of the repo rate
being cut later on to stimulate demand in the recovery phase, and thereby
safeguard price stability."
This approach, out of synch with that of other central banks, appears to
have widespread support at the Riksbank.
-Deputy Governor Martin Floden said "There are indeed factors that suggest
that a policy rate cut would not be an effective way of conducting monetary
policy."
"The increased uncertainty and stress on the financial markets mean that
asset purchases, primarily purchases of mortgage and corporate bonds, have
become more effective and more justifiable," but he added that circumstances
could change and he did not rule out a cut when consumption began to strengthen.
The policy rate is close to its effective lower bound and there is evidence
that rate cuts are less effective when markets are impaired.
-Deputy Governor Per Jansson, who before the onset of coronavirus was the
most dovish of the current members and opposed the December rate hike, made the
case for a cut later in the pandemic cycle, but said "our main focus at present
is not on the repo rate and the repo rate path."
"Each adjustment to the repo rate must be considered very carefully so as
not to unnecessarily waste the ammunition we have left. My view is that the
conditions for repo rate cuts will improve when the rate of spread of the virus
starts to decline and society gradually begins to open up," he said.
-Governor Stefan Ingves described what the Riksbank was doing as is close
to liquidity insurance. It has announced a notional SEK300 billion ceiling on
asset purchases which it rolling out across government, corporate and municipal
bonds and corporate paper.
"We have created a safety-net, a kind of insurance against extremely bad
outcomes, and helped to keep interest rates down. All these measures, which are
basically aimed at ensuring there is enough liquidity in the economy, are
classic central bank measures," he said.
-Ingves downplayed the importance of the Riksbank's economic projections,
with the central bank looking at scenarios rather than focussing on a single
collective projection.
"For economic forecasters, the task is almost impossible. Every scenario
for the spread of the virus is associated with several possible development
paths for economic activity," Ingves said.
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.