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

--First Riksbank Hike Still Not Seen Until Towards End-2018, Early 2019

     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 or early next.

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     The full text of the Riksbank announcement follows:

     Economic activity in Sweden is strong and inflation is close to the target

of 2 per cent. Rapidly rising energy prices have helped to push up inflation. If

energy prices are disregarded, inflationary pressures are still moderate. As it

is important for economic activity to continue to be strong and have an impact

on price growth, monetary policy needs to remain expansionary. The Executive

Board has therefore decided to hold the repo rate unchanged at -0.50 per cent.

If the economy develops as expected, there will soon be scope to slowly reduce

the support from monetary policy. The forecast for the repo rate indicates that

it will also be held unchanged at the monetary policy meeting in October and

then raised by 0.25 percentage points either in December or February.

     Favourable economic activity, Swedish inflation on target

The overall economic outlook remains largely unchanged since the Monetary Policy

Report in July. Global economic activity remains favourable, although there is

considerable uncertainty over future developments. International inflationary

pressure are moderate, but expected to rise going forward. Monetary policy

abroad is expansionary.

     The Swedish economy has been strong over a long period of time. Inflation

is close to the target of 2 per cent, but this is largely due to the rapidly

rising energy prices. Different measures of underlying inflation indicate that

inflationary pressures are still moderate. However, the strong economic activity

creates good conditions for inflationary pressures to rise. CPIF inflation is

therefore expected to stay close to the target even when the rate of increase in

energy prices slows down.

     If developments are as expected - soon scope to slowly reduce support from

monetary policy

It is important that economic activity continues to be strong and has an impact

on price increases. Monetary policy therefore needs to remain expansionary and

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

cent, in line with the forecast in July. If the economy develops as expected,

there will soon be scope to slowly reduce the support from monetary policy. The

forecast for the repo rate indicates that it will also be held unchanged at the

monetary policy meeting in October, and then raised by 0.25 percentage points,

either in December or February. The Riksbank's holdings of government bonds

amount to a good SEK 330 billion, expressed as a nominal amount. Until further

notice, redemptions and coupon payments will be reinvested in the bond

portfolio. All in all, monetary policy will continue to be expansionary for a

long period of time.

     Monetary policy needs to proceed cautiously

The Riksbank continues to exercise considerable vigilance as regards the

development of inflationary pressures in the economy. The krona exchange rate

also has a bearing on inflation, and it is important that the krona develops in

a manner compatible with inflation remaining close to the target. In addition,

there is still considerable uncertainty regarding international developments.

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. If the conditions for inflation were to

change, the Executive Board is prepared to adjust monetary policy.

     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 indicates

it is likely that the repo rate will be raised by 0.25 percentage points at the

monetary policy meeting in October, but which coincides with the report's

repo-rate path as from the third quarter of 2019. He thought that the

communication of such a repo-rate path would entail sufficient tightening of

monetary policy today.

     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. 

     The decision on the repo rate will apply from 12 September 2018. The

minutes from the Executive Board's monetary policy meeting will be published on

17 September. 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