April 27, 2020 / 11:53 AM / a month ago

Swedish central bank seen keeping rate steady, may expand other support - Reuters poll

STOCKHOLM (Reuters) - Sweden’s central bank may leave its benchmark rate unchanged at 0% on Tuesday despite the country facing its deepest economic slump since World War Two, inflation heading down to zero and unemployment surging, a Reuters poll showed.

FILE PHOTO: A view of an entrance at Sweden's central bank in Stockholm, Sweden, August 12, 2016. REUTERS/Violette Goarant

But a handful of economists said they expected the bank to announce other measures such as an increase in its quantitative easing programme or a lower forecast for the path of interest rates ahead.

While Sweden has not opted for the kind of drastic lockdown adopted by governments across Europe, companies have shuttered factories and sent workers home to hinder the spread of the virus while households have cut back on purchases, restaurant visits and travel.

The government reckons the economy will shrink around 7% this year, which would make the downturn the worst since 1940 and top the 4.2% contraction in 2009 during the global financial crisis.

Inflation is likely to drop to zero - far from the central bank’s 2% target.

Nevertheless, the Riksbank - unlike most major central banks around the world - has not opted to cut its benchmark repo rate, and only two of 25 economists in a Reuters poll expect it do so this week.

“If they had thought it was a good idea to cut the repo rate, they would have already done it,” Torbjorn Isaksson, economist at Nordea, said. “Governor Stefan Ingves has downplayed the significance of 10ths of a percentage-point changes.”

All the other economists expected the repo rate to remain at 0% with the median forecast for it to stay at that level through 2021 at least.

The Riksbank has not sat on its hands as the economy has tanked, however.

Since its last regular policy meeting in February, it has taken a number of emergency measures, focusing on supporting liquidity and credit supply in the banking system.

It is offering unlimited loans in Swedish crowns, $60 billion in dollars, and has expanded its quantitative easing programme to 300 billion crowns (24.13 billion pounds).

For the first time ever, asset purchases have included mortgage-backed debt, commercial paper and municipal bonds.

Four analysts polled said they believed the bank could adopt further measures on Tuesday.

“We expect a doubling of the QE programme to 600 billion crowns for 2020 and keeping the programme open-ended,” banking group SEB said in a note. “We also expect the board to lower the repo rate trajectory for 2022 by 20 basis points. The path could even indicate some probability of a rate cut.”

Reporting by Simon Johnson; Editing by Hugh Lawson

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