STOCKHOLM (dpa-AFX) - Sweden's central bank unexpectedly cuts its key repo rate and expanded its asset purchase programme to contain the appreciation of krona amid increased uncertainty over Greece crisis.
The Executive Board of the Riksbank lowered its key rate to -0.35 percent from -0.25 percent. The bank also extended its government bond purchase programme by a further SEK 45 billion with effect from September and until the end of the year.
The repo rate was previously slashed in March, by 15 basis points. The bank had taken the rate into negative zone with a ten basis points cut in February, when it launched its bond purchase programme.
The repo rate is expected to be around -0.35 percent for just over a year. The repo rate path reflects the fact that it is possible to cut the repo rate further, it said.
Further, the bank said the Riksbank still has a high level of preparedness to make monetary policy even more expansionary if necessary, even between the ordinary monetary policy meetings.
The Riksbank's QE programme is still set to be less aggressive than that of the European Central Bank, keeping the upward pressure on the krona, Jessica Hinds, a European economist at Capital Economics, said. Still she sees scope for the Riksbank to lower its policy rate further, perhaps to -0.5 percent.
Policymakers said monetary policy needs to give more support to ensure that inflation continues to rise towards the target of 2 percent. The bank lowered its inflation outlook for 2015 to 0.2 percent from 0.3 percent.
Inflation is forecast to rise to 2 percent next year instead of 2.1 percent, while that for 2017 was maintained at 2.7 percent.
The bank also downgraded its growth projections. The economy is expected to grow 2.9 percent in 2015, down from the prior estimate of 3.2 percent. Meanwhile, the outlook for 2016 was raised to 3.6 percent from 3.4 percent.
The board observed that uncertainty abroad has increased and it has become difficult to judge the consequences of the situation in Greece. Since April, the krona has strengthened more than the central bank had forecast and it remains a risk to the upturn in inflation.
Copyright RTT News/dpa-AFX