Sweden’s central bank added to inflation-boosting measures, saying it would buy an additional 45 billion kronor ($5.6 billion) of assets including bonds this year.
The bank, known as the Riksbank, kept rates at -0.5%.
It said the unprecedented easing measures were designed to “ensure the positive development of the Swedish economy and that the rising trend in inflation continues,” in the statement published on Thursday.
Under normal circumstances, loosening monetary policy causes a currency to fall relative to peers. Lower interest rates attract less investment and lower future demand for the currency, which makes its value fall.
But in the past few months markets have been reacting the opposite way. When Japan surprised markets with measures to ease monetary conditions earlier this year, the yen strengthened.
A similar thing happened today with the Swedish kronor against the Euro:
There are a few theories out there as to why this is starting to happen. Economists, such as former Pimco CEO Mohamed El-Erian, have said that central banks have gone as far as they can with loose monetary policy and negative interest rates.
The market senses that a central bank is reaching the end, and, with the only way forward being to eventually raise rates to combat inflation in the future, funds flow into the currency in anticipation.
The Riksbank attempted to stop this happening by saying it hadn’t reached the limit of easing.
“Even if it is less likely that further monetary policy stimulation will be needed in the period ahead, as economic activity strengthens and inflation approaches the target, negative surprises may lie ahead,” the central bank said.
“In light of this, the Executive Board is still therefore highly prepared to make monetary policy even more expansionary if necessary, even between the ordinary monetary policy meetings. There is still scope to cut the repo rate further,” said the Riksbank.
Although it doesn’t look like the market believed it.
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