The Nordic central banks will need to keep up expansionary monetary policies to revive below-target inflation, the Organization for Economic Cooperation and Development said.
“Expansionary monetary policy and the fading of the effect of the fall in oil prices are expected to raise inflation” in Sweden, the Paris-based group said Wednesday. Norway’s “monetary policy should remain accommodative for some time to support recovery, given that inflation is below target.”
Sweden’s Riksbank this year cut rates to below zero the first time and started buying government bonds to boost demand and prevent deflation from taking hold. Norway’s central bank kept rates unchanged in May but reiterated its readiness to cut rates after easing in December.
Low rates are feeding into house prices, which continue to rise, requiring that Sweden and Norway strengthen macroprudential tools, the OECD said. Danish authorities should restore the link between property values and taxation faster than the current 2020 plan, the group said.
“As policy rates are bound to stay low for some time, a failure to rein in the rise in household debt through the implementation of macroprudential policies and structural reforms could result in unbalanced growth, heightening financial and macroeconomic risks” in Sweden, the OECD said.
Sweden, the largest Nordic economy, will grow 2.8 percent this year, matching a November projection, and 3 percent in 2016, down from 3.1 percent forecast seven months ago, the OECD said. Denmark will grow 1.9 percent and 2.3 percent in the two years and mainland Norwegian growth, which excludes oil and shipping, is forecast at 1.4 percent this year and 2.1 percent next year.
Iceland’s economy will expand 3.7 percent in 2015 and 2.9 percent in 2016 while Finland will grow 0.4 percent and 1.3 percent in 2016, the OECD said. All Nordic countries apart from Finland are outside the euro area.