Riksbank to Raise Rates Next Year as Growth Revives, Nordea Says

Sweden’s central bank has finished lowering interest rates and will start tightening policy next year as growth in the largest Nordic economy accelerates, Nordea Bank AB (NDA) said.

“The Riksbank is likely to place most emphasis on trends in the domestic economy and is therefore not likely to lower the repo rate further from the current 1 percent,” the Stockholm- based bank said in a report today. “Next year the repo rate will be hiked, as improvements in the domestic economy will make the Riksbank want to take its foot off the accelerator.”

The central bank will keep its main rate unchanged this year before raising it to 1.25 percent by June 2014 and 1.5 percent by the end of next year, Nordea said. Consumer spending will drive the economic expansion as rising wages and limited inflation boost purchasing power, according to the bank.

Sweden’s economy will expand faster than estimated, growing 1.3 percent this year, compared with a December forecast of 0.8 percent, Nordea said. Next year, gross domestic product will rise 2.6 percent, more than the 2.4 percent prior estimate, even as export demand remains subdued, the bank said.

Healthy Norway

Norway’s mainland GDP, which excludes oil, gas and shipping, will grow 2.6 percent this year versus a December estimate of 3 percent, Nordea said. Growth will slow to 2.5 percent next year, according to the bank.

The Norwegian central bank will keep its main rate unchanged at 1.5 percent over the next nine months and raise it to 1.75 percent by June next year and to 2 percent by the end of 2014 amid “healthy” economic growth.

Should stricter capital requirements be imposed faster than forecast, growth could slow more than estimated and prompt Norges Bank to cut its rate further and keep it lower longer than projected, Nordea said.

Finland’s economic growth is estimated at 0.5 percent this year and 2.2 percent in 2014 after a contraction in 2012, Nordea said. Denmark’s economy will grow 0.5 percent this year and expand 1.5 percent next year, less than the December prediction.

“Over the forecast period, the activity level should gradually rise driven by both higher domestic demand and higher exports” in Denmark, Nordea said.

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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