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Europe’s Crisis Casting Shadow on Swedish Economy, Riksbank Says

Europe’s debt crisis is casting a “shadow” on Sweden as central bank policy makers in the largest Nordic economy disagreed on how expansionary interest rates need to be, the Riksbank said.

“A central issue, for several members of the Executive Board when making the monetary policy decision, was how the unexpectedly strong development of the Swedish economy should be seen in relation to the increased concern about weaker development in the euro area,” the bank said in minutes published today from its rate meeting earlier this month. “The Executive Board agreed that the repo rate needs to be low to stimulate the economy. However, there were differences with regard to how expansionary monetary policy should be.”

The Riksbank kept its benchmark interest rate at 1.5 percent this month, after two cuts since December, and signaled it may be prepared to lower rates again as Europe’s debt crisis weighs on growth in the largest Nordic economy. The bank said on July 4 that its rate will be at 1.4 percent in the fourth quarter, versus an April forecast for 1.5 percent. It will average 1.6 percent in the third quarter next year, versus a previous prediction for 1.8 percent.

The bank raised its economic forecast for Sweden for this year to 0.6 percent growth from 0.4 percent. The economy will expand 1.7 percent in 2013, compared with an April forecast for 1.9 percent, it said. Gross domestic product will grow 2.8 percent in 2014, it estimates.

Swedish inflation has trailed the central bank’s 2 percent target every month this year and was at 1 percent in June.

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