Sweden's Central Bank Cuts Main Rate, Increases Bond Buys

Sweden's Central Bank Cuts Main Rate, Increases Bond Buys

Sweden's Central Bank Cuts Main Rate, Increases Bond Buys

The FINANCIAL -- In a surprise move, Sweden's central bank on July 2 cut its main interest and increased its bond buying program as it stepped up its battle to raise inflation amid rising economic uncertainty triggered by the Greek crisis, according to Nasdaq.

The central bank, known as the Riksbank, lowered its main repurchase rate to minus 0.35% from minus 0.25% where it had been since March. The bank said it would increase its purchases of government bonds by 45 billion Swedish kronor ($ 5.37 billion).

The decision was a surprise as analysts polled by The Wall Street Journal has expected a largely unchanged policy. The Swedish krona weakened sharply against the euro, which rose to 9.35 kronor from 9.24 kronor.

"Inflation is rising and economic activity in Sweden is continuing to strengthen but uncertainty abroad has increased," the Riksbank said. "Events in Greece over the past few days have substantially increased the uncertainty," it added.

It also cited concerns over a stronger Swedish currency, which had risen beyond Riksbank forecasts and risks choking off imported inflation.

The Riksbank board wasn't unanimous in its decision. Deputy Governor Henry Ohlsson advocated leaving interest rates unchanged but was outvoted by the remaining five members.

The Riksbank last year launched a determined push to raise the inflation rate, which hasn't hit the 2% target since December 2011 and was just 0.1% in May. The bank gave up on efforts to use a higher interest rate to slow household borrowing, athough it remains concerned about private debt levels.

Like other smaller central banks on the perimeter of the eurozone, from Switzerland to Denmark, the Riksbank has also been buffeted by the effects of the European Central Bank's massive bond buying program. The ECB aims to pump more than one trillion euros ($1.105 trillion) in freshly minted money into financial markets by September 2016 and that risks driving up the value of neighboring countries' currencies against the euro unless policy makers in those countries pursue loose policy too.

The Riksbank board said it was ready to do more if needed and said it could change policy in between scheduled meetings as it did in March. It said it has "a high level of preparedness" and could lower rates further, increase bond buys or intervene in foreign-exchange markets.

Analysts said the statement suggests even lower interest rates are likely.

"We would not be surprised if this happened already in September," Nordea bank analyst Andreas Wallstrom said.