MNI STATE OF PLAY: Riksbank Sees Repo Rate At Zero Until 2024

The Riksbank sees the repo rate unchanged at zero percent over the 3-year forecast horizon, despite the Swedish economy holding up better than was expected in the early days of the Covid-19 pandemic, the Monetary Policy Report published Wednesday showed.

Leaving the repo rate unchanged and its current bond buying plans unaltered to total up to SEK700 billion by the end of 2021, the Executive Board's collective projections in the MPR showed the repo rate at 0.0% through to Q1 2024, the same three-year profile that it had in its November forecast.

Inflation was expected to be volatile this year but to stay below the 2.0% target, although rising to 1.3% in 2022 to 1.7% in 2023.

FORECASTS

Growth forecasts were revised higher the previous and current years, to -2.8% for 2020 from -4.0% and to 3.0% for 2021 from 2.6%, although growth was expected to accelerate less rapidly in 2022, with the forecast for that year cut to 3.9% from 5.0%.

While the second wave of the pandemic has been as fierce as last Spring's "the economy has not been hit as hard as it was then" with global trade holding up better, the Riksbank said.

It noted that parts of the economy, including the manufacturing sector, had recovered much of the ground lost last spring and that it was primarily low consumption of services that has been dampening GDP growth. Higher savings were expected to support the recovery once the service sector fully reopened and GDP was expected to average 3.1% a year in 2021 through 2023.

EASING RESTRICTIONS

Policymakers assumed that restrictions related to social spending because of Covid would be removed in the first half of the year. After peaking at 9.2% in June unemployment is expected to decline slowly, reaching 7.4% in 2023, a little below the 7.7% in the November forecast.

The asset purchase programme was seen on track to use up the full SEK700 billion envelope by the end of this year. The Riksbank now owns a high share of government bonds and it is limiting its buying of these to longer maturities, with other assets making up the bulk of its planned purchases.

Overall bond purchases for the second quarter were set at SEK90 billion and treasury bill purchases at SEK10 billion. Government bond purchases were set at just SEK12 billion with planned municipal bond purchases at SEK15 billion and covered bonds at SEK60 billion.