Sweden Cuts Interest Rate for First Time Since 2009 on Europe Debt Crisis

Sweden’s central bank cut its main interest rate for the first time since 2009 and predicted it will keep the benchmark unchanged over the next year as Europe’s debt crisis saps growth in the largest Nordic economy.

The seven-day repo rate was lowered a quarter point to 1.75 percent, the Stockholm-based Riksbank said today. The move was predicted by 11 of 24 analysts in a Bloomberg survey, while two forecast a half point cut and the rest an unchanged rate. The bank lowered its rate forecast to 1.7 percent in the fourth quarter next year, on average, from a 2.3 percent estimate.

“Things are pretty messy in the world around us and that also affects the Swedish economy,” Riksbank Governor Stefan Ingves said in Stockholm. “We expect that the rate will stay around these levels at least through 2012 and a bit longer.”

Sweden’s bank returned to crisis mode as growth in the export-reliant economy, home to wireless network maker Ericsson AB, slowed for a third quarter in the three months through September. The European Central Bank and policy makers in neighboring Norway both cut rates this month to ease the fallout from the deepening debt crisis, which has sent Swedish interbank rates to a three-year high.

Krona Rises

The krona rose 0.3 percent to 8.9779 per euro and 0.8 percent to 6.8721 against the dollar as of 12:54 p.m. in Stockholm. Sweden’s two-year note yield rose five basis points to 0.80 percent. A basis point is 0.01 percentage point.

The Riksbank’s forecast for future rate moves disappointed the market which had expected it would include rate cuts, said Michael Grahn, an analyst at Danske Bank A/S in Stockholm.

Euro countries yesterday bolstered their anti-crisis arsenal, channeling 150 billion euros ($195 billion) to the International Monetary Fund as the ECB widened its support for sagging bond markets. Sweden and three other countries not using the single currency also pledged to add funds. Ingves said last week Sweden may contribute as much as 100 billion kronor ($14 billion).

“We will get slowing growth going forward and at the same time inflationary pressure in the Swedish economy is low,” Ingves said. The bank cut its forecast for economic growth next year to 1.3 percent from 1.5 percent, and estimated 2012 inflation will slow to 1.5 percent, on average. Growth will accelerate to 2.3 percent in 2013, it forecast.

Reservations

The ECB reduced its benchmark rate on Dec. 8 for the second time since November to 1 percent, matching a record low, as the 17-nation euro region struggles to avoid a recession. Norway’s central bank unexpectedly cut its main rate by 0.5 percentage point to 1.75 percent on Dec. 14.

The Riksbank’s rate path “indicates a 25 percent probability that rates will be cut another 25 basis points at the 16 February meeting,” said Mikael Nilsson and Marcus Widen, analysts at Barclays Capital Plc in London, in a note.

Deputy Governors Karolina Ekholm and Lars E.O. Svensson entered a reservation against the decision and wanted the rate cut a half point to 1.5 percent. They also called for a rate of 1.25 percent in the second quarter of next year.

Swedish data indicate the largest Nordic economy, which relies on exports for about half its output, continued to slow this quarter with falling industrial orders and retail sales as consumer confidence holds near a two-year low.

Inflation, adjusted for mortgage costs, has been below the Riksbank’s 2 percent target all year and held at a two-year low of 1.1 percent in November. The headline inflation slowed for a third month to 2.8 percent.

Nordea Bank AB (NDA), the Nordic region’s biggest lender, said today they are sticking to a forecast for the bank to cut rates to 0.75 percent next year.

“The Riksbank’s rate path still remains well above our forecast,” Andreas Jonsson, an analyst at Nordea, said in a note today. “We regard their economic outlook as too optimistic.”

The Swedish central bank in September halted a cycle of rate increases after the economy expanded at the fastest pace in 40 years last year. Sweden will post a budget surplus in 2011 for a second year, and the European Commission estimates the nation’s public finances will remain in the black through its 2013 forecast horizon.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman in Oslo at jbergman@bloomberg.net

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