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Swedish Riksbank to Cut Rate to 0.75% in 2012, NIER Says

Sweden’s economy will stall in the coming quarters and the country’s central bank will lower interest rates next year as inflation slows, the National Institute for Economic Research said.

“We forecast falling GDP in the coming quarters,” said Jesper Hansson, head of forecasting at NIER, at a press conference today in Stockholm. The institute forecasts the Riksbank will cut its benchmark rate by one percentage point during the first half of 2012, he said.

The largest Nordic economy will grow 0.6 percent next year, down from an August forecast of 1.9 percent, the Stockholm-based institute said. The Riksbank will cut its benchmark rate to 0.75 percent by the end of next year, the group forecast.

Sweden’s central bank yesterday cut its benchmark repo rate for the first time since 2009 to 1.75 percent, citing weakening growth prospects and inflationary pressure. Growth in the Swedish economy is slowing as European leaders are struggling to contain a sovereign debt crisis.

“Through increased uncertainty and weak exports, Sweden is being negatively affected by the government debt crisis in Europe,” the NIER said in a statement. “The year 2012 will thus be one of lackluster growth. Absence of progress toward solutions for the crisis-ridden countries of the euro area is unnecessarily delaying recovery.”

The krona rose 0.2 percent to 8.9627 per euro and 0.6 percent to 6.8225 against the dollar as of 11:46 a.m. in Stockholm.

The NIER today forecast growth of 4.5 percent this year. Inflation will slow to 1.1 percent next year from 3 percent this year and unemployment will rise to 7.8 percent next year and 7.9 percent in 2013.

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