MNI: Sweden Riksbank Leaves Key Repo Rate At -0.50% - Text

--First Riksbank Hike Still Not Seen Until Towards End-2018

     LONDON (MNI) - Sweden's Riksbank has decided to leave the key repo rate

unchanged at -0.5% at Monday's meeting, with bond buying plans left unchanged.

The central bank again said that it doesn't expect to raise rates until towards

the end of the year.

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     The full text of the Riksbank announcement follows:

     Repo rate unchanged at -0.50 per cent

Economic activity is strong and inflation is close to the target of 2 per cent.

As earlier, however, inflationary pressures are moderate. Monetary policy needs

to continue to be expansionary for inflation to remain close to target. The

Executive Board has therefore decided to hold the repo rate unchanged at -0.50

per cent. The forecast for the repo rate is also unchanged and indicates as

before that slow repo rate rises will be initiated towards the end of the year.

     International economic activity is strengthening but uncertainty has

increased

Economic developments abroad remain favourable. However, uncertainty over future

developments has risen as a result of factors such as increased trade

restrictions and economic policy developments in Italy. Inflation abroad is

moderate but will rise this year due to higher oil prices. Normalisation of

monetary policy abroad is taking place slowly.

     Strong Swedish economic activity, moderate inflationary pressures

In Sweden, economic activity is high, the labour market strong and inflation on

target. As in other countries, higher energy prices have contributed to rising

inflation. The krona exchange rate has developed more weakly than expected and

together with more rapid energy price increases, this will contribute to higher

inflation in the year ahead compared with in the previous assessment. In the

longer term, however, the forecast for CPIF inflation is unchanged. 

     Measures of underlying inflation, which provide an indication of where

inflation is heading, still suggest that inflationary pressures are moderate.

For inflation to remain close to 2 per cent in the period ahead, it is important

that economic activity continues to be strong and has an impact on price

increases. The exchange rate is expected to strengthen gradually in the coming

years but there is uncertainty surrounding the forecast. It is important that

the krona exchange rate develops in a manner compatible with inflation remaining

close to target.

     Expansionary monetary policy for continued on-target inflation going

forward

Overall, the Executive Board deems it appropriate to keep monetary policy

unchanged. The Executive Board has therefore decided to leave the repo rate at

-0.50 per cent. The forecast for the repo rate is also unchanged and indicates

as before that slow repo rate rises will be initiated towards the end of the

year. The Riksbank's holdings of government bonds amount to about SEK 330

billion, expressed as a nominal amount. Until further notice, redemptions and

coupon payments will be reinvested in the bond portfolio.

     If the conditions for the development of inflation were to change, the

Executive Board is prepared to adjust monetary policy. The risks of excessively

low inflation merit particular attention, as at the prevailing interest rate

levels, excessively low inflation is more difficult to manage than excessively

high inflation.

     The Executive Board has also decided to extend the mandate that facilitates

rapid intervention on the foreign exchange market. The krona has weakened in the

past year. But in the years ahead, it is expected to strengthen and the exchange

rate remains a source of uncertainty as regards the development of inflation. An

excessively rapid appreciation of the krona would make it more difficult to

stabilise inflation.

     Important to have measures to reduce the risks associated with household

indebtedness

The low interest rates are exacerbating the risks linked to high and rising

household indebtedness, while the fundamental causes of the high indebtedness

still remain. Achieving long-term sustainable development in the Swedish economy

therefore requires measures within housing policy, taxation policy and, where

necessary, macroprudential policy.

     Deputy Governor Martin Floden entered a reservation against the repo rate

path in the Monetary Policy Report. He advocated a repo rate path that indicated

an initial increase of the repo rate by 0.25 percentage points in September or

October this year but that coincided with the report's repo rate path as from

the third quarter of 2019.

     Deputy Governor Henry Ohlsson entered a reservation against the decision to

maintain the repo rate at its current level and against the repo rate path in

the Monetary Policy Report. He advocated raising the repo rate to -0.25 per cent

with reference to the strong economic growth in Sweden and abroad. 

     Deputy Governors Martin Floden and Henry Ohlsson entered reservations

against the decision to extend the mandate for foreign exchange interventions.

Mr Floden cited the same reasons as he did regarding previous decisions on the

mandate. Mr Ohlsson considered that in a situation with inflation and inflation

expectations close to the target level, potential interventions on the foreign

exchange market can be managed without a special mandate.

     The decision on the repo rate will apply from 4 July 2018. The minutes from

the Executive Board's monetary policy meeting will be published on 12 July.

Further information on the Executive Board's decision on the mandate for foreign

exchange interventions can be found in a separate annex to the minutes at

www.riksbank.se. A press conference with Governor Stefan Ingves and Jesper

Hansson, Head of the Monetary Policy Department, will be held today at 11 a.m.

in the Riksbank. Press cards must be shown. The press conference will be

broadcast live on www.riksbank.se.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com