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INTEREST RATE

No change for Sweden interest rate: Riksbank

Sweden's central bank is holding the country's benchmark interest rate steady at 1.5 percent, the Riksbank announced on Wednesday, saying the Swedish economy was showing some "positive signs".

No change for Sweden interest rate: Riksbank

“There are now signs that prospects have brightened and that exports and domestic demand in the Swedish economy are increasing again,” the bank said in a statement.

“The sentiment among households and companies is more positive and exports of goods have recently increased.”

In addition, the global economy is “growing at a relatively good pace” and the US economy is also showing signs of improvement.

“However, the situation on the financial markets in Europe is fragile,” the bank said, adding that “much work needs to be done” to help fix the fiscal woes of many debt-laden eurozone countries.

Thus, while the bank doesn’t see the need to further cut interest rates, it nevertheless lowered its forecast for 2012 Swedish GDP growth to 0.4 percent, down from 0.7 percent, and in line with forecasts unveiled in the government’s spring budget released earlier this week.

The Riksbank expects the Swedish economy to pick up slightly in 2013 and 2014, forecasting GDP growth rates of 1.9 percent and 2.8 percent, respectively.

Unemployment, however, is expected to rise slightly in 2012 to 7.7 percent and remain at that level through 2013 before dipping somewhat in 2014 to 6.9 percent.

Inflationary pressures are also expected to remain low for the remainder of 2012 before rising to 1.9 percent in 2013, nearly in line with the Riksbank’s 2 percent target.

While the Riskbank also announced the repo rate path remained unchanged, it held out the possibility for further rate cuts in the future, depending on developments in the global economy.

“There is considerable uncertainty about economic developments abroad,” the bank cautioned.

“The situation in the euro area is still problematic, and the public debt problems could worsen and have further negative effects on the Swedish economy.”

The Local/dl

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ECONOMY

Sweden’s Riksbank raises rates above zero for first time since 2014

Sweden's central bank has increased its key interest rate to 0.25 percent, marking the first time the rate has been above zero for nearly eight years.

Sweden's Riksbank raises rates above zero for first time since 2014

In a press release announcing the move, the bank said that it needed to take action to bring down the current high rate of inflation, which it predicts will average 5.5 percent in 2022, before sinking to 3.3 percent in 2023.

“Inflation has risen to the highest level since the 1990s and is going to stay high for a while. To prevent high inflation taking hold in price and wage developments, the directors have decided to raise interest rates from zero to 0.25 percent,” it said. 

The Riksbank, which is tasked by the government to keep inflation at around two percent, has been caught off-guard by the speed and duration of price rises.

Just a few months ago, in February, it said it expected inflation to be temporary, predicting there was no need to increase rates until 2024.

The last time the key inflation rate was above zero was in the autumn of 2014. 

In the press release, the bank warned that the rate would continue to increase further in the coming years. 

“The prognosis is that the interest rate will be increased in two to three further steps this year, and that it will reach a little under two percent at the end of the three-year prognosis period,” it said. 

According to the bank’s new future scenarios, its key interest rate will reach about 1.18 percent in a year, and 1.57 percent within two years. 

In a further tightening of Sweden’s monetary policy, the bank has also decided to reduce its bond purchases. 

“With this monetary policy we expect inflation rates to decline next year and from 2024 to be close to two percent,” the bank wrote. 

Annika Winsth, the chief economist of Nordea, one of Sweden’s largest banks, said the rate hike was “sensible”. 

“When you look at how inflation is right now and that the Riksbank needs to cool down the economy, it’s good that they’re taking action – the earlier the better. The risk if you wait is that you need to righten even more.” 

She said people in Sweden should be prepared for rates to rise even further. 

“You shouldn’t rule it out in the coming year. Then you’ll have a once percentage point increase which will go straight into fluctuating mortgage rates.” 

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