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Swedish central bank ends 5 years of negative rates after raising to zero

The Swedish central bank concluded a five-year streak of negative interest rates by raising its key rate despite a slowdown in the economy, and downgraded its economic growth forecast for 2019.

The Sveriges Riksbank raised its repo rate to 0.0% from negative 0.25%, consistent with its projection in October, saying it expects the rate to remain at zero over the coming years.

In its latest monetary policy decision, effective Jan. 8, the central bank cited a slowdown in the Swedish economy following years of strong growth and labor market developments. It expects inflation to remain close to the central bank's target of 2% following a rebound from an unanticipated fall over the summer period.

In addition, the central bank revised its GDP growth forecast for 2019 to 1.1% from 1.3% projected earlier in October. While its 2020 GDP growth forecast remains unchanged at 1.2%, those for 2021 and 2022 were lifted to 1.7% and 1.9%, respectively, from 1.6% and 1.8%.

Inflation forecast

The bank downgraded its forecast for consumer price inflation in 2020 to 1.8% from 1.9%, while keeping those for 2019, 2021 and 2022 unchanged at 1.8%, 1.8% and 2.1%, respectively.

The board could trim the rate and take further measures if the economic growth and inflation prospects did not meet expectations, while a rate hike would be on the cards if prospects were to improve more than expected.

Following its decision in April, the bank will buy government bonds for a nominal value of 45 billion Swedish kronor from July 2019 to December 2020.

"With this expansionary monetary policy, the economy is expected to be balanced in the coming years and conditions are deemed good for inflation to remain close to the target going forward," the bank said.

The kronor was trading 0.24% higher against the dollar as of 4:30 a.m. ET.

As of Dec. 18, US$1 was equivalent to 9.42 Swedish kronor.