Central bank in surprise rate rike

Sweden's central bank, the Riksbank, surprised markets today by raising its main interest rate, the repo rate, by 0.25 percentage points to 4.25 percent.

The Riksbank said in a statement that Sweden’s economic outlook and inflation prospects remained largely the same as in December.

“Economic activity in Sweden remains good and the labour market is strong. GDP growth will slow down over the year and the increase in employment will slacken. Resource utilization in the economy will nevertheless be higher than normal,” said the Riksbank in a statement.

The move caught analysts and markets off guard, with most having expected rates to remain unchanged.

The krona shot up against both the dollar and the euro on the news, and finanical market professionals were quick to criticize the Riksbank.

“It’s very unexpected. I was surprised. There are slow downs in the world economy, Swedish export markets, and wage growth. And despite all this, the Riksbank thinks there is reason to raise interest rates,” said Jörgen Appelgren, cheif economist with Nordea.

The bank said that it had taken into account the recent turmoil in the world economy but had come to the same conclusion as in December.

“The repo rate needs to be raised to 4.25 per cent and the assessment is that it will remain at roughly the same level over the coming year. But there is considerable uncertainty in this assessment.”