Riksbank Keeps Rates Unchanged as Sweden Seen Beating Crisis

Sweden’s central bank kept its benchmark interest rate unchanged amid optimism Europe’s debt crisis is abating, helping to buoy a recovery in the largest Nordic economy.

The seven-day repo rate was kept unchanged at 1 percent, the Stockholm-based bank said today. The decision was predicted by 13 of 22 economist surveyed by Bloomberg, with the rest forecasting a cut. The krona soared as much as 0.8 percent against the euro and 0.9 percent versus the dollar after the announcement.

“Growth in the Swedish economy is still weak and inflationary pressures are low,” the bank said. “But there are some positive signs pointing towards stabilization and strengthening in economic activity over the year.” The bank said it sees its rate at 1.2 percent in the first quarter of next year, versus a December estimate of 1.3 percent.

Most forecasters estimate Sweden’s economy will recover this year as jobs growth boosts confidence that Europe has surfaced from the worst of its fiscal turmoil. The European Central Bank kept its benchmark rate unchanged last week at a record low of 0.75 percent, after euro-area economic confidence rose to a seven-month high in January, easing pressure on the bank to lower rates further.

Krona Reaction

The krona surged 0.8 percent to 8.4991 per euro as of 9:58 a.m. in Stockholm. The country’s two-year yield jumped eight basis points to 1.14 percent.

The bank kept its growth forecasts unchanged, predicting that the Swedish economy will expand 1.2 percent this year, after a gain of 0.9 percent last year. Growth will pick up to 2.7 percent next year. Consumer prices, excluding mortgage costs, will remain below the 2 percent target until 2015, the bank said. Unemployment will be 8.1 percent this year and ease to 7.8 percent next year, higher than the 7.6 percent prediction in December.

“If you look at the risks of a collapse in the euro area, which was somewhat of a theme in the autumn and winter of last year, you can’t really see that happening,” said Roger Josefsson, chief economist at Danske Bank A/S in Stockholm. “The basic stance is that most things are actually better than they were at the last meeting.”

Still, two of the bank’s six board members voted to lower rates. Deputy Governor Karolina Ekholm wanted a cut to 0.75 percent while Deputy Governor Lars E.O. Svensson advocated for a repo rate of 0.5 percent through the first quarter of 2014.

No Recession

Sweden has steered clear of the recession that’s descended on the euro area, helping the AAA rated Nordic nation to emerge as a haven from the debt woes plaguing southern Europe. Demand for Swedish assets sent the krona to a 12-year high versus the common currency in August. Over the past 12 months, it’s up 3.1 percent against the euro and 5 percent against the dollar.

A stronger krona and higher unemployment have helped damp inflation. Sweden’s consumer prices fell annual an 0.1 percent in December, declining for a second month, a report last month showed. The Riksbank’s preferred measure, which factors out mortgage costs, showed an annual inflation rate of 1 percent, far below its 2 percent target.

Sweden’s gross domestic product grew 0.8 percent last year after expanding 3.9 percent in 2011, SEB AB said yesterday. GDP will grow 1.2 percent in 2013 and 2.5 percent in 2014, it said. Unemployment was 7.8 percent in December, adjusting for seasonal swings, compared with 8.1 percent a month earlier, the statistics office said on Jan. 24.

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