Sweden's central bank expanded its quantitative easing and maintained interest rate at zero to support recovery and lift inflation as the coronavirus pandemic substantially hurt the economy.

The executive board of Riksbank decided to expand the asset purchases programme to SEK 500 billion from SEK 300 billion. The programme will continue until the end of June 2021.

The bank left its repo rate unchanged at zero percent and signaled that it is prepared to take the rate to negative zone.

The board further decided to cut interest rates and extend maturities for lending to banks.

Riksbank will purchase government bonds, mortgage bonds and municipal bonds for SEK 100 billion between October 1 and December 31. The bank will offer to purchase corporate bonds for SEK 10 billion up to June 30, 2021.

"All in all, the Riksbank's measures mean that there will be comprehensive monetary policy stimulus in the form of low interest rates and a large amount of liquidity for the foreseeable future," the bank said.

These measures would create the conditions for a recovery in the Swedish economy and will help inflation rise towards the target of 2 percent towards the end of the forecast period, the bank added.

The unemployment is expected to continue rising and inflation is set to take time before returning to the target, Riksbank observed.

The central bank forecast inflation to slow to 0.5 percent this year, before rising to 1.4 percent in 2021.

Even if the economy gradually recovers in the coming years, it will take some time before resource utilization in the Swedish economy, Riksbank said. GDP is expected to shrink 4.5 percent in 2020 but expand 3.6 percent next year and 4.1 percent in 2022.

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