STOCKHOLM – Sweden's central bank said Thursday it will reduce the size of its bond-buying program but indicated it was in no rush to raise its key interest rates, pushing back the likely timing of a first increase to mid-2018.
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The Riksbank said it would continue to buy bonds during the second half of this year, but cut the size of its purchases.
The extension of the bond buying program highlights the caution with which Europe's central banks are responding to an improved economic outlook. The European Central Bank is expected to leave its stimulus programs unchanged when it announces the results of its latest policy deliberations later Thursday.
"Economic activity in Sweden is increasingly strong," the Riksbank said, but noted that it will take longer before inflation stabilizes around its 2% target. "The repo rate is now not expected to be raised until mid-2018," it said.
The dovish tone of the statement came as a surprise to many central bank watchers, who had expected the Riksbank to flag a rate increase in early 2018. After the announcement, the Swedish krona weakened against the euro, which rose to 9.6020 kronor from 9.5560 kronor.
Despite an improved outlook for the Swedish economy, the Riksbank extended its bond-purchase program by six months to the end of 2017. However, it cut the volume of purchases to 15 billion kronor from 30 billion kronor in the first half of the year. It also kept the main interest rate unchanged at a record low of minus 0.5%, as expected.
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It said that a rate cut is still more likely than an increase in the near term.
"There is still considerable uncertainty over political and economic developments abroad," Sweden's central bank said.
Dominic Chopping contributed to this article.
Write to Nina Adam at email@example.com
Corrections & Amplifications
This article was corrected at 08:49 GMT because the original misspelled Risksbank in the fifth paragraph. It should be Riksbank.
The dovish tone of the statement came as a surprise to many central bank watchers, who had expected the Riksbank to flag a rate increase in early 2018.("Sweden's Riksbank Cuts Bond-Buying Program, Leaves Repo Rate Unchanged," at 0828 GMT, misspelled Riksbank in the fifth paragraph.)
(END) Dow Jones Newswires
April 27, 2017 05:35 ET (09:35 GMT)