Riksbank Economic Forecast May Be Optimistic, Jansson Says
Sweden’s central bank Deputy Governor Per Jansson signaled that the bank’s latest economic forecasts may prove optimistic as Europe’s debt crisis continues to dominate monetary policy in the largest Nordic economy.
“The downside risks are bigger than the upside risks,” Jansson said in response to questions in Stockholm.
First Deputy Governor Kerstin af Jochnick today said that the key concern is the European debt crisis and that policy makers in Sweden have taken into account last week’s bond plan announcement by the European Central Bank in their view the region would muddle through the turmoil.
There are other issues such as deciding on a banking union and a follow up on how far Greece has come, “so there are still a lot of loose ends,” af Jochnick said in Stockholm. The recovery in the krona at the end of last week wasn’t a surprise since the “trend is that it will strengthen,” she said.
The Riksbank unexpectedly lowered its benchmark repo rate a quarter of a percentage point last week to 1.25 percent, citing a weaker-than-expected economy in the euro region and a strong krona. The bank, which signaled it will keep rates unchanged until the middle of next year when tightening will resume, estimates gross domestic product will expand 1.5 percent this year and 1.9 percent in 2013.
The bank had been under pressure to cut rates from unions and businesses after the currency jumped to a 12-year high in August. The currency weakened 0.4 percent today to 8.4881 per euro as of 2:07 p.m. in Stockholm.
According to Jansson, growth prospects for the economy play a bigger role than productivity when setting rates, calling a purchasing managers’ index released on Sept. 3 “pretty lousy.” The report showed Sweden’s manufacturing unexpectedly shrank in August at the fastest pace since May 2009 as the krona’s appreciation sent export orders plunging.
It would take “miracles” for Swedish growth not to slow, Jansson said today.
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