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INTEREST RATE

Sweden cuts repo rate as economy slows

Sweden's slowing economy and dampened concerns about inflation prompted the Riksbank to cut the country's benchmark interest rate by 0.25 percent to 1.25 percent on Thursday.

Sweden cuts repo rate as economy slows

The Riksbank added that it expected the repo rate to remain at its current level until the middle of next year.

While the Swedish economy has been surprisingly robust through the first half of 2012, the country’s central bank said reduced demand from the euro area is dampening exports and weakening GDP growth.

“The Riksbank noted in July that inflationary pressures in the Swedish economy were low and that monetary policy thus needed to be expansionary,” the bank said in a statement.

“Since then, the krona has appreciated faster than expected and productivity in the Swedish economy has also been unexpectedly high. All in all, this means that inflation will be lower in the coming period, compared with the assessment in July.”

In explaining the need to cut rates further, the Riksbank said it wanted to “prevent inflation from being too low in the coming period”.

The bank added it plans on raising the repo rate gradually as economic conditions improve later next year in order to help the Riksbank reach its 2 percent target level for inflation.

But uncertainly about the eurozone “could have further negative effects on the Swedish economy”, the bank warned.

“However, the Swedish economy has so far been unexpectedly resilient and confidence among Swedish households and companies may also rise faster than expected,” the Riksbank said.

TT/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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