Swedish Riksbank Raises Benchmark to 1%, Lowers Rate Forecast
A flag of the Swedish Central Bank flies in Stockholm
Casper Hedberg/Bloomberg
A flag of the Swedish Central Bank flies from a flagpole outside the building in Stockholm on Nov. 18, 2008.
A flag of the Swedish Central Bank flies from a flagpole outside the building in Stockholm on Nov. 18, 2008. Photographer: Casper Hedberg/Bloomberg
Sweden’s central bank raised its benchmark repo rate for a third time since July while policy makers said the prospect of a sluggish global recovery suggests further tightening plans should be scaled back.
The Stockholm-based Riksbank raised the seven-day repo rate by a quarter of a percentage point to 1 percent, it said today on its website. The decision was expected by all 20 economists surveyed by Bloomberg.
“The Swedish economy is growing rapidly,” the bank said in its statement. “However, due to the weak developments overseas, it is not deemed that the repo rate needs to be raised so much in the coming years.”
Sweden’s $470 billion economy will grow 4.8 percent this year, the government estimates, as an export-led recovery recoups most of last year’s 5.1 percent contraction. The Riksbank is curbing tightening plans as the outlook for other parts of Europe and the U.S. grows less certain and international interest rates remain low, it said.
“This was a much more dovish Riksbank than we expected,” saidElisabet Kopelman, an economist at SEB AB in Stockholm. “Obviously this is a big surprise compared to the signals that we have gotten from the Riksbank lately; they clearly have become more worried about what is happening in the global economy and clearly they have taken notice of the message from other central banks and they are adjusting the monetary policy in Sweden accordingly.”
Krona Slides
The krona slipped 0.9 percent against the euro to trade at 9.2793 at 10:50 a.m. in Stockholm. Against the dollar, the krona lost 1 percent to trade at 6.6478.
The Riksbank now sees the seven-day repo averaging 1 percent this quarter, 1.3 percent in the first quarter of 2011 and 2 percent in the fourth quarter next year. The rate will reach 3.4 percent in the fourth quarter of 2013, it predicted. That compares with a previous forecast for 1.4 percent next quarter, 2.4 percent in the fourth quarter next year and 3.3 percent in the final quarter of 2012, it said.
Deputy Governors Karolina Ekholm and Lars E. O. Svensson entered a reservation against today’s rate decision and against the new repo path. Both preferred a repo rate of 0.75 percent and a repo rate path that gradually rises to 2.7 percent by the end of the forecast period.
Svensson last month told newspaper Svenska Dagbladet more rate rises could spell “a catastrophe” for the economy.
‘Different Views’
“You will always have different views,” Governor Stefan Ingves said in an interview today after the rate decision was announced. “All of us have various backgrounds and this is how the system is organized, so it’s not all that surprising.”
The bank raised its forecast for the economy this year to 4.8 percent growth from 4.1 percent previously. It sees total output expanding 3.8 percent in 2011 and 2.5 percent in 2012, it said. Headline inflation will be 1.2 percent this year, 1.7 percent in 2011 and 2.2 percent in 2012, the bank said, lowering its price forecasts for the next two years.
The government on Oct. 12 raised this year’s economic forecast, though it cut next year’s growth outlook to 3.7 percent, citing the threat to exports from a lackluster global recovery. The International Monetary Fund expects Sweden’s economy to expand 2.6 percent next year.
U.S. Slumping
“The U.S. economy is slumping, the threat from the eurozone is not decreasing and I think the Swedish economy is going to taper off,” said Par Magnusson, chief Nordic economist at Royal Bank of Scotland Group Plc, before the announcement. “Sweden is going to see slow growth going forward.”
The headline inflation rate rose 0.5 point to 1.4 percent last month, though the measure has lagged behind the central bank’s 2 percent target since December 2008.
A slower recovery abroad “is leading to moderate inflation pressures and low international rates,” the Riksbank said.
The U.S. economy will grow only 1.75 percent over the next year, with risks pointing to even slower expansion, said Ramin Toloui, an emerging markets portfolio manager at Pacific Investment Management Co., which runs the world’s biggest bond fund, on a conference call this month.
In the EU, the risk of slower growth is increasing as governments press ahead with cutting deficits, the International Monetary Fund said on Oct. 20. The Fund expects the euro area to grow 1.5 percent next year.
The ECB, which has kept its benchmark at 1 percent since May 2009, on Oct. 7 said rates are “appropriate.” The Federal Reserve, which has kept its main rate in a range of zero to 0.25 percent since December 2008, on Sept. 21 reiterated plans to keep the benchmark “exceptionally low” for an “extended period.”
To contact the reporter on this story: Josiane Kremer in Oslo at kremer4@bloomberg.net
To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net
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