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Riksbank leaves rates unchanged despite rising inflation

by OMFIF and National Bank of Poland analysis

Tue 16 May 2017

After a long period of deflation, Sweden's inflation rate seems to be heading towards the Riksbank's target of 2%. However, having reached 1.8% in February, the consumer price index slipped to 1.3% the following month. The other measure of inflation in Sweden, the CPIF (CPI with a fixed interest rate, which is not directly affected by changes in mortgage rates) fell to 1.5% in March after hitting 2% a month earlier. 

The Riksbank's reference rate remains at all-time low (minus 0.5%) and the bank does not expect to raise it until 2018. Positive territory is unlikely to be reached before early 2019. In the light of this expansionary policy, government purchases will continue for the first six months of this year, bringing total bond purchases to Sek290bn ($32.6bn), without reinvestment. Little wonder the Riksbank is keen to bring inflation levels up.

After a sharp appreciation of the krona at the start of 2017, it reversed some of its gains, stabilising against the euro at around Sek9.5. But it then weakened to Sek9.6 after March's lower than expected inflation figures. The proportion of cash on the Riksbank balance sheet has fallen continuously, dropping to 7% from 54% 10 years ago.

Analysis by Pawel Kowalewski, Economic Adviser in the Bureau of Monetary Policy Strategy at the National Bank of Poland.