STOCKHOLM (Reuters) – Sweden’s central bank is prepared to take further measures if needed to mitigate the effects of the coronavirus outbreak on the economy, but a rate cut is not needed at the moment, Riksbank Governor Stefan Ingves said on Friday.
As Sweden’s economy has begun to shut down, the central bank has poured money into the financial system, offering 500 billion crowns ($49.26 billion) in loans to companies via banks and boosting its purchases of securities by 300 billion crowns. It is also offering $60 billion in funding in dollars.
“We may need to do even more if necessary, and do it again and again until we all see the light at the end of the tunnel,” Ingves said in the text of the speech, published by the central bank. “And this we are prepared to do.”
However, the central bank has not followed its peers in many countries and cut its benchmark rate, currently at 0%.
“It is not the main issue at the moment,” Ingves said.
“I understand that there are many who reason this way, because that is the way we are used to thinking, but monetary policy is something completely different currently when the main purpose is to keep the Swedish economy going.”
The central bank is sceptical about negative rates after five years below zero. However, inflation and consumption are likely to slump as a result of the economic slowdown, meaning the Riksbank could yet be forced into a U-turn on rates.
The U.S. Federal Reserve, the Bank of England and neighbour Norway are among those who have cut rates.
Sweden’s government estimates that the economy will shrink 4% this year as the coronavirus outbreak hits supply and demand, a plunge rivalling that experienced during the global financial crisis more than a decade ago.
But that depends on a relatively quick recovery in the second half of the year and some analysts believe the figure could be much worse.
The economy shrank around 10% in 1940 in the worst downturn in modern times.
(Reporting by Simon Johnson and Johan Ahlander; editing by Niklas Pollard and Nick Macfie)