Riksbank keeps interest rates unchanged as growth improves in UK and US

Sweden´s central bank kept its benchmark interest rate unchanged on Thursday despite having lowered its inflation forecasts for this year and next.

The Riksbank kept its repurchase rate, or 'repo' rate, at -0.35%, as expected by economists.

"The Riksbank remains highly prepared to make monetary policy even more expansionary in the event of inflation prospects deteriorating," the monetary authority said in a statement.

Policy makers in the country also stand ready to intervene on foreign exchange markets should it be faced with undue strength in the currency, the central bank explained.

Rate-setters in Stockholm now expect inflation as measured by the country´s consumer price index to be flat in 2015, down from a previous forecast for a rise of 0.2%.

Next year, the CPI is seen rising by 1.8%, less than a previous forecast for a gain of 2.0%, although "CPIF inflation can be expected to be close to 2% in 2016".

The announcement came ahead of Thursday´s meeting of the European Central Bank´s governing council, with many observers expecting the ECB to pare its own inflation forecasts as well, possibly alongside an extension of the duration of the central bank´s quantitative easing programme.

Acting as a backdrop, speaking overnight Bank of Japan board member Takahide Kiuchi reiterated his stance in favour of reducing the central bank´s asset purchases. In his opinion, the BoJ should give itself more time to reach its 2% inflation target given the country´s current growth potential.

To take note of, Kiuchi saw scant chance that recent problems in China could trigger a global financial crisis.

Commenting on the Riksbank´s decision, Capital Economics said: "we doubt that this marks the end of the Riksbank’s loosening cycle. Indeed, the Riksbank itself today admitted that there were a number of factors suggesting that monetary policy should be more expansionary, not least the recent renewed fall in oil prices."

As regards the outlook for economic growth overseas, the Riksbank also stated that: "the recovery abroad is continuing. Growth improved in the United States and the United Kingdom in the second quarter, at the same time as the euro area continued to grow at a moderate pace. However, uncertainty over economic developments abroad remains high."