Swedish central bank deputy governors Per Jansson and Barbro Wickman-Parak “thought a great deal” about cutting the repo rate by half of a percentage point last month to boost a Swedish economy hurt by Europe’s debt crisis.
The Riksbank on Dec. 18 lowered its benchmark rate by a quarter of a percentage point to 1 percent -- the fourth cut in a year. While Deputy Governor Lars E.O. Svensson voted to lower the rate by 0.5 percentage point, both Jansson and Wickman-Parak considered such a reduction before joining the majority decision of the six-person board, according to minutes published today from the rate meeting on Dec. 17.
Sweden is struggling with the fallout from Europe’s sovereign debt crisis, which has led to a slump in Swedish exports, about 70 percent of which go to Europe. Some of Sweden’s biggest companies, including TeliaSonera AB and Volvo AB have cut thousands of jobs in an effort to adjust to shrinking export markets.
Sweden’s krona slid 0.4 percent to 8.5630 per euro as of 10:33 a.m. in Stockholm.
“During the autumn it has become increasingly clear that the weak developments abroad and the distrust linked to the political crisis have gnawed their way into the Swedish economy,” Wickman-Parak said in the minutes.
Jansson, who in October thought the repo rate could be left unchanged, last month wanted to cut the rate “immediately” and saw two alternatives -- lowering by a quarter or half a point.
According to the minutes, Jansson “wondered” whether a 50 basis point cut could increase unease among households. “Could such a measure really be perceived as a signal that the Riksbank believes that Sweden is now in a crisis?,” he said.
Wickman-Parak said the effects of a larger cut would have been limited.
“Cutting the repo rate by 50 basis points would have the effect of surprise, which could affect the krona exchange rate and provide some support to exports, but this support should not be exaggerated, as the problem essentially concerns weak demand from abroad,” Wickman-Parak said in the minutes.
The bank said on Dec. 18 it expects the rate to be at 1.1 percent in a year, versus an October forecast of 1.3 percent. It sees the rate at 1.8 percent by the end of 2014. Two of the bank’s six board members, Karolina Ekholm and Svensson, entered reservations against the repo rate forecast, advocating a trough of 0.75 percentage point and 0.5 percentage point, respectively.
The Swedish economy will expand 1.2 percent next year, compared with an October forecast of 1.8 percent, the Riksbank said on Dec. 18. Its prediction for 2014 growth was unchanged at 2.7 percent, while it sees inflation at only 0.3 percent next year, far below its 2 percent target.
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