Sweden’s central bank has expanded and extended its quantitative easing programme in an attempt to ease the economic effects of an increasingly damaging resurgence of the coronavirus pandemic.
The Riksbank said on Thursday that it would keep its interest rates at zero in the “coming years” and expand its asset purchase programme from SKr500bn ($58.7bn) to SKr700bn ($82bn) as it warned that the Swedish economy would weaken in the near term. It also extended the period over which it will buy bonds by six months, to the end of next year.
“By expanding and extending the asset purchase programme, the Riksbank is making it clear that comprehensive monetary policy support will be available as long as it is needed,” the central bank said.
The move comes against a backdrop of sharp increases in deaths, hospitalisations and cases of Covid-19 in Sweden after its state epidemiologist Anders Tegnell had consistently said the country would be spared the worst effects of a second wave. Sweden has reported 330 deaths of people with Covid-19 in the past eight days, more than neighbouring Norway — with half the population — has had since the pandemic began.
Sweden continues to stand out from the rest of Europe with its Covid strategy by not formally locking down, not recommending the use of face masks, and not quarantining close contacts of infected people. But it has imposed more restrictions than in the first wave, including local, non-binding recommendations such as to avoid public transport or shopping centres.
The increase in Covid-19 cases is hitting Sweden harder in both health and economic terms than the government had forecast and prime minister Stefan Lofven has warned that the situation is likely to get worse before it gets better, with public support for its no-lockdown strategy dropping.
In only the fourth-ever address to the nation by a Swedish prime minister, Mr Lofven said on Sunday that people had become “careless” in following the guidelines from health authorities.
“Everything that you would like to do but is not necessary: call it off, cancel, postpone,” he said.
The Riksbank upgraded its forecasts slightly for the eurozone, US and Japanese economies this year but it cut its estimates for Sweden for both this year and next.
It now expects Sweden’s economy to contract 4 per cent this year, compared with a forecast of minus 3.6 per cent two months ago, while in 2021 it now expects a rebound of 2.6 per cent, well below the 3.7 per cent it had forecast in September.
Its move shows “it will not stand idly by as the economy heads south”, said David Oxley, senior Europe economist at Capital Economics. The move was taken by a divided Riksbank board with two of its six members objecting to the expansion of QE.
The Riksbank was one of the pioneers of negative interest rates but returned Sweden’s base rate to zero late last year amid worries about the possible side effects. It said it was still possible it could cut rates but economists said this was unlikely.
Governor Stefan Ingves has told the Financial Times that measures other than monetary policy, such as asset purchases, are more effective at combating the economic fallout from Covid-19.
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