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Brexit prompts Sweden to keep record-low interest rate

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Brexit prompts Sweden to keep record-low interest rate
Sweden's Riksbank boss Stefan Ingves. Photo: Marcus Ericsson/TT
10:06 CEST+02:00
Sweden's central bank has announced that the country's record-low interest rate will remain unchanged at -0.50 percent, citing continued global uncertainty partly sparked by the Brexit vote.

"Inflation is rising and the Swedish economy is developing strongly. However, there is still considerable uncertainty abroad," said the Riksbank in a statement on Wednesday morning.

The bank reiterated plans announced in July that it would not begin raising the country's key interest rate, the repo, until the second half of 2017, as a result of Britain's vote to leave the EU.

"Economic policy uncertainty continues to be high, among other reasons due to the result of the British referendum. Economic signals following the referendum result have not been clear-cut and it is still too early to draw any clear conclusions regarding the effects," said the Riksbank.

Sweden first slashed the repo below zero in February 2015 in a landmark decision. It hopes that the financial strategy will boost inflation to raise the price of everyday goods and services, which has been stagnant for the past years, and improve the Nordic nation's economic prospects.

The Riksbank expects to get inflation levels up to above two percent, which is the target, in 2018.

But it added: "There are several factors that create uncertainty in the inflation forecast. These include international developments, among others the effects of the result of the British referendum and weaknesses in the European banking system. Another factor is the development of the krona."

The bank also said on Wednesday that its purchases of government bonds would continue during the second half of 2016, as it first announced in April, and added that it remained prepared to make monetary policy even more expansionary if necessary, even between ordinary policy meetings.

"But the low interest rate levels also entail risks, such as increased household indebtedness. To achieve long-term sustainable development in the Swedish economy, these risks need to be managed via targeted measures within macroprudential policy, housing policy and fiscal policy."

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