Swedish Riksbank Seen Pausing as House Price Gains Top Inflation

Swedish house prices are rising at too fast a pace to allow the central bank to cut interest rates, even as inflation remains well below the bank’s 2 percent target, according to SEB AB.

“The Riksbank will likely continue to accept somewhat slower inflation and in return try to stem credit growth,” Erica Blomgren, chief strategist at SEB in Oslo, said by phone. “The Riksbank is currently more looking into credit growth and trying to prevent rising investment among households. The trend in house prices has turned and prices are actually rising again.”

Consumer prices were unchanged in March from a year earlier after falling 0.2 percent the previous month, Statistics Sweden said today. Prices were seen falling 0.2 percent, according to a Bloomberg survey of 12 economists. House prices increased an annual 3 percent in the first quarter, the statistics office said in a separate statement.

Riksbank Governor Stefan Ingves, who is also the chairman of the Basel Committee on Banking Supervision, is trying to fix chronic below-target inflation without fueling an asset bubble in Scandinavia’s largest economy. His board agreed to leave the repo rate at 1 percent in February after four cuts in the year through December. The economy stagnated in the fourth quarter as lackluster demand in Europe and gains in the krona hurt exports.

Krona Strengthens

The krona rose 0.4 percent to 8.3279 per euro at 12:08 p.m. in Stockholm. It strengthened 0.8 percent to 6.3489 per dollar.

The Riksbank will probably keep its main rate unchanged through the rest of the year, Blomgren said. Inflation will average 0.3 percent in 2013 and 1.8 percent in 2014 as the economy grows 1.6 percent this year, Swedbank AB forecast yesterday.

“From a pure inflation perspective, and also taking into consideration unemployment, there is definitely more room for stimulus in Sweden,” Blomgren said. The rate path should continue to signal a “small probability” of a cut, she said.

The Riksbank said in February inflation won’t reach its 2 percent target until May 2014. The bank announces its next rate decision and new economic forecasts on April 17.

Consumer prices rose 0.4 percent on the month. Adjusted for mortgage costs, inflation was 0.9 percent while consumer prices by that measure gained 0.5 percent from a month earlier.

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