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Sweden to keep record-low interest rate in 2017

Sweden's central bank has announced that the country's record-low interest rate of -0.50 percent will remain in place longer than previously planned, with the rate now not due to be changed until 2018.

Published: 27 October 2016 10:28 CEST

Sweden to keep record-low interest rate in 2017

Sweden's landmark negative interest rate will continue towards 2018. Photo: Anders Wiklund/TT

Earlier this year the Riksbank said that uncertainty caused by Britain’s vote to leave the EU meant the country’s negative interest rate would stay in place until the second half of 2017. On Thursday however it announced that the rate will now remain unchanged until early 2018, sighting a slower than expected rise in inflation.

“The Riksbank now assesses that it will take longer for inflation to reach two percent. The upturn in inflation therefore needs continued strong support,” the Riksbank wrote in a press release.

Sweden took the landmark decision to slash the repo below zero in February 2015, hoping that the financial strategy would boost inflation to raise the price of everyday goods and services which had been stagnant in recent years, and therefore improve the Nordic nation’s economic prospects.

It now predicts that inflation will reach 1.4 percent in 2017, a downward adjustment from the 1.8 percent forecast in a previous estimation. By 2018 the Swedish central bank expects inflation to reach 2.2 percent.

“However, in recent months inflation has slowed down, which illustrates the uncertainty over how quickly inflation will rise towards the target,” the Riksbank's press release explained.

The Riksbank also noted that a monetary policy meeting in December could lead to an extension of its programme of purchasing government bonds. By the end of 2016 it will have purchased bonds worth 245 billion kronor ($27.5 billion).

Thursday’s announcement did not immediately lead to any strong reactions, with the Swedish krona weakening marginally against the US dollar and the euro.

How to protect your Swedish savings when the stock market tumbles

Stock market volatility can be unsettling, especially when it hits close to home.

On Monday, the Stockholm stock exchange mirrored global market turmoil, with the OMXS index dropping 4.8 percent in morning trading. By 11 am, there was a slight recovery, but the index remained 2.6 percent down.

READ MORE: Stockholm stock exchange opens in the red amid global market jitters

Big names in Swedish industry weren’t spared: Boliden, a major mining company, dropped 3 percent, defence giant Saab fell 1.5 percent, and engineering firm Sandvik declined by 2.6 percent. In the banking sector, SEB took a 2.4 percent hit, while Swedbank dropped 3.6 percent.

This turbulence in the Swedish market came after significant drops in Japan’s Nikkei 225 index, which experienced its most significant one-day fall since the 1987 Black Monday Crash, and similar declines in markets across South Korea, Frankfurt, London, and anticipated losses on Wall Street.

In these uncertain times, many Swedish consumers with money invested in the market wonder whether they should do something to safeguard their savings.

Avoid impulsive decisions, expert warns

Stock market volatility can raise concerns about the safety of your savings, but according to SEB household economist Américo Fernández, there’s no need to panic.

“Should they be worried? I mean, no. I would say that this is how the stock market works: there’s a lot of uncertainty and risk connected,” he told The Local.

“When you have savings on the global stock exchanges, this will happen, especially when we’ve had at least six months of really, really good returns – maybe even too good. Then, this is a little bit expected.

“But of course, it’s always dramatic when we have such developments in the stock market in just one or two days.”

Slow and steady wins the (investment) race

For those wondering how to protect themselves against such crashes, Fernández emphasised a consistent and steady approach to investing.

“The most common thing, the best strategy for the broad masses, is to save on a monthly basis. And this is what many Swedes do; our surveys show that 9 out of 10 Swedes save on the stock market every month. This is precisely what you should do: invest in a mutual fund, which is quite common in Sweden,” he said.

“In circumstances such as these, you buy more at a lower price, instead of timing the stock market, which is almost impossible, continue your monthly investments through mutual funds. That’s a good way of diversifying your portfolio.”

READ ALSO: Will the krona’s decline stop Riksbank from cutting rates?

Ignore the alarmist headlines

The SEB household economist also advised against reacting hastily to alarming headlines.

“Another thing that households should be aware of is that when you see alarming headlines, you should sit and calmly ride the wave out.

“It’s understandable that a lot of people are affected by herd mentality when we have these negative headlines. Everyone, but especially households with tiny savings, acts and sells, and then they buy again when the headlines are positive, when the stock exchange is at high levels…

“That is the opposite of what you should do. Try to neglect these things and be cool in these circumstances, even though it seems bad and hurts your wallet. However, if it hurts your wallet too much, that might be a signal that you have too much money in the stock market (laughs), which can be common for younger investors. Although they have had it pretty good recently,” he noted.

This advice is not only applicable to Sweden but also relevant across Scandinavia, according to Fernández.

“I think it’s applicable. Across Scandinavia, all Nordic countries save a lot of money on the stock exchange, partially because the pension system isn’t fully funded by the government,” he said.

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