Stockholm--Sweden's central bank took its key interest rate further into negative territory Wednesday in a surprise move aimed at supporting a return to inflation.
The Riksbank cut its repo rate by 0.15 percentage points to -0.25 percent and said it was buying government bonds worth 30 billion kronor ($3.4 billion, 3.2 billion euros) as the "recent appreciation of the (Swedish) krona" threatened the trend towards a return to the country's 2.0 percent inflation target.
"The Executive Board of the Riksbank assesses that an even more expansionary monetary policy is needed to support the upturn in inflation and ensure that long-term inflation expectations are in line with the inflation target," the bank said in a statement.
Inflation has been close to zero in Sweden since late 2012 and in February it was at 0.1 percent.
The bank said it had bottomed out and was beginning to rise but that the rising krona -- up 5.0 percent against the euro over the last month -- could break the trend.
"The central bank had decided to keep the krona weak and is not satisfied with the resulting inflation increase," Thorbjoern Isaksson, an economist at Nordea bank told news agency TT.
European central bankers have been battling to end the trend of falling prices.
Although lower prices sound like they should be positive for consumers and the economy, economists fear that they could touch off deflation in which shoppers put off purchases in the belief that prices could fall further.
This leads to a spiral of ever weaker demand, slowing the economy and pushing up unemployment.
Sweden's repo rate serves as a reference between the central bank and the country's commercial banks during refinancing operations.
The rate also acts as a guide for rates on money markets and a further negative level of -0.25 percent will further drive down the cost of credit.
The bank's decision to buy government bonds has the same aim of boosting a return to inflation and will take place between March 26 and the end of May.
Swedish daily Svenska Dagbladet called the announcement "extraordinary" as rate changes are traditionally made public after the central bank's monetary policy meetings.
"These measures and the readiness to do more at short notice underline that the Riksbank is safeguarding the role of the inflation target as a nominal anchor for price setting and wage formation," the bank said, adding that the rate would "remain at -0.25 per cent at least until the second half of 2016."
AFP
