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Riksbank Slashes Repo Rate to Zero, Krona Slumps

October 28, 2014 at 17:27 by Vladimir Vyun

Stacks of Swedish coinsThe Swedish krona dropped today after Sweden’s central bank decided to reduce its main repo rate to the absolute minimum in an effort to spur inflation that was below the bank’s target for a long time.

Riksbank cut its benchmark interest rate by 25 basis points to zero at today’s meeting. The bank commented on the decision:

The Swedish economy is relatively strong and economic activity is continuing to improve. But inflation is too low. The Executive Board of the Riksbank has therefore decided that monetary policy needs to be even more expansionary for inflation to rise towards the target of 2 per cent.

With consumer prices falling for the most part of the year and inflation staying below the target for almost three years, it is not a surprise to see why the central bank had to make such decision. In fact, the bank was strongly criticized for raising interest rates too early and waiting too long to fight deflation, meaning that perhaps policy makers should have made such move even earlier.

USD/SEK climbed 0.40 percent to 7.3309 as of 17:25 GMT today, rising to the daily high of 7.3829 earlier. EUR/SEK advanced 0.81 percent to 9.3412, jumping as much as 1.3 percent to 9.3826 intraday.

If you have any questions, comments or opinions regarding the Swedish Krona, feel free to post them using the commentary form below.

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