The Riksbank minutes from the 27 October monetary policy meeting were characterized by the decision to cut the repo rate to 0.00 per cent.
The minutes confirm that main reason behind the decision was the unusually sharp downward revision of their inflation forecast. A large part of the discussion was devoted to the potential reasons behind the low inflation outcomes, whether they were demand- or supply-driven. Also, all governors noted the importance that other policy makers should take measures to dampen household credit growth.
There were only few hints on monetary policy going forward. Interestingly, Deputy Governor Flodén, usually classified as a dove in the board, said that “the scope for cutting the repo rate to negative levels is limited, or perhaps non-existent” and he also pointed out “that the likelihood of the repo rate being lowered from its current level is small”. Deputy Governor Skingsley said that “if monetary policy needs to become more expansionary, this would primarily entail postponing a repo-rate increase.”
The board did not at all discuss more exotic, unconventional, measures such as negative rates, QE or currency floor. Should the outcome surprise negatively, the current tool seems to be limited to postponing the first rate hike, which they predicts in mid-2016, or lowering the rate path longer out.
Nordea