|10-28-2014, 06:24 PM||#1|
Sweden`s central bank surprisingly cuts interest rate to zero to beat off deflation
The Central bank of Sweden decided on Tuesday to cut its interest rate unexpectedly by 25 basis points to a record low of zero to ward off deflation, and pushed back its forecast for tightening policy.
Consumer price in Sweden has only risen on one month in 2014 so far, despite signs the economy is strengthening. Inflation has been unable to hit the Riksbank’s target for many years.
"The Swedish economy is relatively strong and economic activity is continuing to improve. But inflation is too low," the Riksbank said in a statement on Tuesday.
The central bank has been trimming interest rate at a steady pace from a 2011 peak of 2.0%, as the country’s main strength, exports have been hit by a long-lasting weakness in Europe.
Economic growth has begun to accelerate in Sweden, and at a higher pace than other European countries, but inflation is well below the Riksbank’s target of 2%.
Inflation was last recorded at -0.4% in September.
The Riksbank also reduced the repo rate to 0.0%, which is lower than the Eurozone’s repo rate where growth is expected to be weaker than in Sweden.
The Bank also delayed its forecast for when it would tighten monetary policy.
"It is assessed as appropriate to slowly begin raising the repo rate in the middle of 2016," the central bank said.
Declining inflation is threatening the recovery of Sweden and is undermining the confidence in the central bank’s inflation goal amid various attempts to loosen monetary policy.
The Swedish krona instantly hit its lowest level in more than four years against the U.S. dollar following the announcement and was around its lowest in three years against the Euro.
Sweden`s main stock index, the Stockholm 30 Index gained nearly 1%.
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