Riksbank leaves key rate unchanged, but Executive Board members are split over monetary policy outlook

The Riksbank left its key rate unchanged at 0.25% at today’s monetary policy meeting, as widely expected. According to the Central Bank, future developments are still uncertain, despite early signs of economic recovery and the market upturn. The Riksbank expects to begin lifting the repo rate again in the second half of 2010.

The press release published after the meeting indicated that the Executive Board members were divided on the monetary policy outlook. On the one hand, Governors Nyberg and Wickman-Parak entered reservations against growth forecasts in the Monetary Policy Update and thereby the repo rate path saying that the interest rate needed to be raised slightly earlier than expected due to improvement in financial markets and economic activity. On the other hand Governor Svensson advocated cutting the repo rate to 0 per cent and suggested that the rate should be kept at this level in the year ahead.

Given the uncertainty surrounding the economy, we believe that the Riksbank will not start raising rates and removing other expansionary monetary policy tools (i.e. negative rates for the commercial banks depositing money at the Central Bank) before other leading international Central Banks. The Bank is highly likely to hold its rate steady for a long time and well into 2010.