Swedish central bank holds rates but ready to cut if needed

Sweden's central bank held its benchmark rate unchanged at 0% as expected on Tuesday and made no major changes to the package of measures it has launched to cushion the blow from the coronavirus outbreak on the economy, but said it was ready to do more if needed.

With Sweden facing its worst downturn since World War Two, the Riksbank has already launched a raft of measures including loans in dollars and crowns, and an expanded quantitative easing program to keep the financial system from seizing up. But unlike the majority of the central bank's around the world, the Riksbank has held its benchmark rate unchanged, arguing that it is better to focus on credit supply and to counteract a rise in interest rates to households and companies.

"It was not deemed justified at this point in time to try to increase demand by lowering the repo rate when the downturn in the economy is due to imposed restrictions and people's concerns about the spread of infection," the Riksbank said in a statement. It did not rule out a cut "if this is deemed an effective measure to stimulate demand and support the development of the inflation in the recovery phase."

Sweden has kept schools and shops open during the coronavirus outbreak, but supply chain problems and measures to prevent the spread of COVID-19 have, nevertheless, forced many businesses to close and send home workers - some permanently. The Riksbank gave two scenarios for the economy. In the first, gross domestic product shrinks around 6.9% this year before bouncing back sharply in 2021. In a more negative scenario, the dip could be 9.7% and recovery may be very modest next year, the Riksbank said.

Headline inflation falls to 0.6% in 2020 in both scenarios, miles from the central bank's 2% target.