The Swedish krona fell today after the nation’s central bank signaled that it is ready to cut interest rates deeper into the negative territory and expand its quantitative easing program.
The Riksbank kept its main interest rate at -0.5% at today’s policy meeting. While the krona initially rallied due to absence of a rate cut, the currency backed off after market participants digested the policy statement and discovered that it is rather dovish. The central bank said:
The Board does not expect to begin slowly raising the rate again until early 2018. The repo-rate path now also reflects a greater probability that the rate could be cut further.
The bank also voiced concern about inflation, predicting that it will take longer to reach the 2% goal and saying:
The Riksbank therefore still has a high level of preparedness to make monetary policy even more expansionary if the upward trend in inflation were to be threatened.
As it usually happens, prospects for more accommodative policy hurt the currency. The krona fell more than 1% against the US dollar due to policy divergence as the Federal Reserve is planning to raise its interest rates.
USD/SEK jumped as much as 1.81% to 9.0702 as of 19:33 GMT today.
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