SEK Hit Hard as Riksbank Cuts Rates into Negative Territory and Launches QE

The latest central bank to bring rates into negative territory is the Swedish central bank known as Riksbank. This morning at a scheduled monetary policy meeting the monetary policy governing body of Sweden decided to cut the repo rate to −0.10 percent, and set out a program to buy government bonds for SEK 10 billion while standing prepared to do more at short notice if necessary.

As a result, the Swedish krone is currently trading 1% lower on the day, as markets did not expect the move. Only a minority of forecasters expected the rate cut, but none of the analysts surveyed expected a quantitative easing program.

The Swedish krone has been amongst the most volatile currencies in recent months as it lost 32% of its value against the US dollar for the past year. The main reason for this decline has been the decline in inflation rates which prompted the central bank to deliver a series of rate cuts to reach below zero, while a year ago the rate was at 0.75%.

Riksbank outlined in its statement that while there are signs that underlying inflation has bottomed out, external factors have been increasing the risk that inflation will not rise at a desired pace.

The quantitative easing program is rather small, with SEK 10 billion mentioned as a start. With readiness to do more, the central bank of Sweden is signaling its intentions to deliver on its inflation target of 2%.