The Swedish central bank will start to wind down its quantitative easing progress in the new year but held its key rate at negative 0.5% and said monetary policy needed to remain expansionary.
"Economic activity needs to remain strong for inflation to continue to be close to the target. It is also important that the krona does not appreciate too quickly," the Sveriges Riksbank said in a statement, in which it added that it would "begin slowly raising" its key repo rate in the middle of 2018.
The krona jumped 0.5% against the dollar after the announcement, in which the central bank said it would begin reinvesting bonds maturing in 2019 from January.
Despite a rise in November inflation, the central bank said economic prospects and outlook for inflation were largely unchanged since its last meeting in October, with economic activity remaining robust and the employment rate still high. A drop in housing prices is expected to diminish housing investment in the coming years but any downward impact on GDP growth should be tempered by strong external demand.
The Riksbank's net purchases of government bonds will amount to a nominal value of 290 billion krona at the end of 2017, it said, adding that redemptions and coupon payments in the government bond portfolio would be reinvested until further notice. Some 50 billion krona in redemptions will occur during the first half of 2019, together with coupon payments totaling about 15 billion crowns from January 2018 to June 2019, the central bank said.
As of Dec. 19, US$1 was equivalent to 8.44 Swedish krona.