The Swedish krona crashed today as the nation’s central bank cut its repo rate more than analysts have expected and promised to keep it low till the end of the next year. The bank also cut its growth and inflation estimates.
The Riksbank cut its main interest rate by half a percentage point (instead the expected quarter of a percentage point) to 0.25 percent. The central bank had rather positive view on the global economy, saying that it “is expected to continue to gradually improve”, and the domestic economy as well, explaining in the statement:
In Sweden, economic activity is continuing to strengthen, mainly driven by a strong household sector and rising housing investment.
Yet concerns about low inflation pressure still prompted the bank to loosen its monetary policy:
There has been a broad fall in inflation and it is now assessed that underlying inflationary pressures are clearly lower than assessed in April. The repo rate and the repo-rate path therefore need to be even lower for inflation to rise towards the target.
The Riksbank lowered its inflation forecast for this year to -0.1 percent compared to the April estimate of 0.2 percent and the growth forecast to 2.2 percent compared to the previous assessment of 2.7 percent. The bank also stated about the future monetary policy:
Increases in the repo rate are not expected to begin until the end of 2015.
USD/SEK jumped from 6.7046 to 6.8294 (1.86 percent) as of 12:27 GMT today, reaching the high of 6.8759 intraday. EUR/SEK advanced from 9.1579 to 9.3200 (1.75 percent), while its daily high was at 9.3898.
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