Sweden's central bank expands stimulus program

AP News
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Posted: Oct 28, 2015 7:23 AM

STOCKHOLM (AP) — Sweden's central bank says it will expand its bond purchase stimulus program by 65 billion kronor ($7.6 billion) to help the economy and nudge inflation toward the 2 percent target.

Wednesday's announcement means the Riksbank's bond-buying will reach 200 billion kronor by the middle of next year, and comes as several central banks around the world consider more stimulus to fend off an economic slowdown.

The Riksbank said it is pursuing expansionary policies "to underpin the positive development in the Swedish economy and safeguard the robustness of the upturn in inflation."

Analysts said the move was in response to the potential of more stimulus from the European Central Bank in the eurozone, of which Sweden is not a member. Stimulus tends to weigh on a currency, and a rise in the Swedish krona against the euro would hurt exporters and weigh on inflation.

"Still, improving Swedish growth outlook, rising capacity utilization and slightly higher inflation suggest that the Riksbank will find it increasingly difficult to match ECB monetary policy in 2016," said Olle Holmgren of SEB bank.

Some analysts had expected an interest rate cut on Wednesday but the Riksbank kept its key repo rate at negative 0.35 percent.

The bank also reiterated its concern over household debt in Sweden, which many analysts say is fueling a housing bubble, but said the responsibility for reforms needed to cool the housing market lies with government and Parliament.

So far, the government has not been willing to take potentially unpopular measures, such as removing tax breaks for home owners that experts say contribute to pushing up home prices.

"If no measures are taken, this, in combination with the low level of interest rates, will further increase the risks, which may ultimately be very costly for the national economy," the Riksbank said.