Sweden's central bank expands QE to boost recovery

Sweden's central bank on Wednesday promised to expand its quantitative easing programme and hinted it could cut what is already the world's lowest lending rate even further to support the country's economic recovery and quicken inflation.

The Riksbank pledged to buy between SKr40bn and SKr50bn ($4.8bn-$6bn) of government bonds, taking the total stock of Swedish sovereign debt the central bank holds to between SKr80bn and SKr90bn.

The central bank dashed expectations that it would shave another 10 basis points off its benchmark interest rate. Some analysts had expected the Riksbank to cut its repo rate by 10 basis points from its current level of minus 0.25 per cent.

However, while the central bank held its benchmark interest rate steady for now, it hinted that the rate could fall again in the coming months. The central bank also extended its projections for when it expects rates to rise, saying slow increases in the repo rate were not expected until the second half of next year.

Consumer prices are expected to fall by 0.2 per cent this year - way below the Riksbank's target of annual rises of 2 per cent - and the economy is forecast to expand by 2.1 per cent.

As well as pushing down interest rates for households and companies, the central bank said it expected the measures to "contribute to the krona remaining at a weaker level for a longer period of time".

Both Denmark's central bank and the European Central Bank have cut their deposit rates into negative territory, meaning they charge banks a levy on deposits parked in their coffers.

The Swiss National Bank also has a negative benchmark rate, though this rate is in effect meaningless as liquidity is so abundant in Switzerland that banks tend not to borrow from the central bank.

The central bank said it would buy the government bonds, which will have maturities of up to 25 years, between May and the end of September.

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