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Sweden Central Bank To Go Slow With Rate Hikes

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Sweden's central bank left its key interest rate unchanged on Thursday and said they will remain at the current level for a longer period than forecast earlier, as policymakers saw the need for caution.

"The Executive Board has decided to hold the repo rate unchanged at -0.25 per cent and assesses that the rate will remain at this level for a somewhat longer period of time than was forecast in February," the Riksbank said in a statement.

The decision was in line with economists' expectations.

The repo rate was last hiked in December in an unexpected move, the first raise since July 2011. Swedish interest rates entered negative territory in early 2015.

The bank said the repo rate is likely to be raised again towards the end of the year or at the beginning of next year. Thereafter, increases in the repo rate are expected to occur at a somewhat slower pace, compared with the assessment in February.

"Unexpectedly low inflation both in Sweden and abroad, low interest rates abroad and uncertainty over global developments emphasize that there is a need to proceed with caution in monetary policy," the Riksbank said.

Policymakers also decided that the Riksbank will buy government bonds for a nominal value of SEK 45 billion from July 2019 to December 2020.

They also stressed on the need to have measures to reduce the risks linked to high indebtedness of Swedish households.

The central bank raised the growth forecast for this year to 1.7 percent from 1.3 percent, while the projections for next year and 2021 were retained at 1.9 percent and 1.8 percent, respectively.

The CPI inflation outlook for this year was trimmed to 2 percent from 2.2 percent and the projection for next year was cut to 2.3 percent from 2.6 percent. The forecast for 2021 was slashed to 2.6 percent from 3 percent.

The CPIF inflation forecast for this year was cut to 1.8 percent from 2 percent. The outlook for next year was retained at 1.8 percent, while the projection for 2021 was lowered to 1.9 percent from 2 percent.

The repo rate is now seen at 0.04 percent in the second quarter of 2020, while it was earlier projected as 0.23 percent. The rate is expected to reach 0.42 percent in the second quarter of 2021, which was earlier seen as 0.73 percent, and 0.80 percent in the same period of 2022.

Riksbank Deputy Governors Martin Floden and Henry Ohlsson entered reservations against the decision to purchase government bonds from July 2019 to December 2020.

Both policymakers argued that further purchases will not contribute to monetary policy target attainment in a clear way, but that there are risks associated with additional purchases. They also referred to their previous reservations regarding the Riksbank's decisions on bond purchases, most recently in December 2017.

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