Sweden's central bank held its main interest rate steady at -0.5% today, citing Brexit uncertainty as a reason to delay future rate hikes.
The Swedish economy continues to strengthen, but there is "considerable uncertainty" over developments abroad, the Riksbank said, adding that government bond purchases will continue during the second half of 2016.
Sweden's central bank is buying more bonds to drive down longer yields as policy makers try to fight currency gains that threaten to undermine their efforts to rekindle inflation.
The Riksbank left its benchmark repo rate at -0.5%, but added 45B kronor ($5.6B) to its quantitative easing program, including inflation linked bonds, to be purchased during the second half of the year.
Sweden's currency is gaining against the dollar in the wake of the announcement.
Sweden's central bank has lowered its key interest rate even further below zero, saying it's prepared to use its full toolbox of measures as it battles to revive inflation and keep the krona from appreciating.
"Uncertainty regarding global developments is still high, with low inflation and several central banks pursuing more expansionary monetary policy," the Riksbank said.
The repo rate was reduced from -0.35% to -0.50%, while government bond purchases will continue as planned for the first six months of 2016.
Sweden's central bank has kept its key lending rate unchanged at a record-low of -0.35% and refrained from boosting it bond purchasing program in a bet that a surge in growth will propel the economy out of three years of zero inflation.
"Developments in the Swedish economy have been somewhat stronger than expected, while uncertainty remains globally," the bank said. "There has been an upward trend in inflation since last year, but it is not yet on a firm footing."
The Riksbank's outlook for rates to first rise in early 2017 was also kept unchanged.
Sweden's central bank unexpectedly lowered its main interest rate deeper into negative levels today and expanded its bond purchases to the end of the year, saying uncertainty abroad had increased and it was difficult to assess the consequences of the situation in Greece.
The repo rate was cut to -0.35% from -0.25%, while the country expanded its bond purchasing program by 45B kronor ($5.3B) to the end of year, adding to the 80B-90B kronor that was already announced.
Now up 17% YTD, the Stoxx Europe 600 this week had its highest close since 2000, and is just 1% shy of its all-time high hit in March 2000.
The big move has early-year bulls like Goldman Sachs and Citigroup scrambling to lift their year-end targets.
"There’s something much more sustainable here,” says a strategist in London. “Sentiment was bearish in the eurozone for a long, long time. It’s just starting to change.” Indeed. Recent BAML fund manager surveys show bullishness on European stocks has reached uncharted territory.
Heightening the risk of a slide toward deflation, Eurostat today reported the largest decline in consumer prices in the eurozone since July 2009.
Consumer prices were 0.6% lower than in January 2014, having fallen 0.2% on an annual basis in December.
The plunge in consumer prices is unlikely to have an immediate effect on the ECB's €60B/month QE package, although the longer prices stay in negative territory, the more pressure the central bank will have to extend the program.
"We will do what we must to raise inflation and inflation expectations as fast as possible," Mario Draghi told a banking conference, promising faster asset purchases as needed.
The Stoxx 50 (NYSEARCA:FEZ) is higher by 2.2%, led by a 2.4% gain in Spain (NYSEARCA:EWP) and a 2.3% advance in Italy (NYSEARCA:EWI). Germany (NYSEARCA:EWG) and France (NYSEARCA:EWQ) are up 2%, and the U.K. by 1%.
The euro (NYSEARCA:FXE) is down 0.9% and buying $1.2432.
Euro-Zone GDP failed to grow in the second quarter following 12 months of weak growth, causing European equity markets to fall and increasing pressure on the ECB to do more to boost growth and inflation.
Data released this morning by the European Union's statistics office translates into 0.2% growth in annualized terms, down from the first quarter's 0.8% pace.
The euro zone's three largest economies, which account for two-thirds of the region's €9.6T ($12.8T) GDP, all did not post any growth. German GDP shrank 0.2% from the first quarter and Italy's output fell at a similar pace. The French economy, the bloc's second largest behind Germany, stagnated for a second straight quarter.
The region's next largest economies, Spain and the Netherlands, posted some growth but not enough to offset their larger peers.
The Swedish krona is the world's worst performing currency today after the Riksbank unexpectedly slashes its benchmark rate by 50 basis points to 0.25%. A cut had been expected, but the size of the reduction has taken most by surprise.
The move comes following the ECB's rate cut last month, and with the zero bound fast-approaching, some suggest the Riksbank will have to look to unconventional measures next.
The Stoxx 50 (FEZ) is up 0.8% after being about flat ahead of the ECB rate decision, at which the central bank cut all three of its benchmark rates, including taking the deposit facility rate into negative territory.
Italy (EWI) with a 1.3% gain and France (EWQ) ahead 1% lead the way.
The euro (FXE) tumbles about 40 pips, now off 0.3% on the session and buying $1.3563.