Riksbankers Say Better Scenario Need Not Mean Higher Rates

Two of the Riksbank’s six board members said they could stick to a forecast of raising rates at the end of next year even if the economy performs better than expected, according to the minutes of its latest meeting.

“A discussion of how the repo-rate path should be adapted to new information arose when two members argued that it may not be necessary to change the repo-rate path even if the development of the economy proved to be better than in the main scenario,” the bank said in a statement today.

The two members, deputy governors Per Jansson and Cecilia Skingsley, last month backed the 4-2 decision to keep the Riksbank’s main lending rate at 1 percent until late next year to support a recovery of the export-reliant economy. Two other members argued for a cut to 0.75 percent to boost inflation, which has trailed the bank’s 2 percent target since the start of 2012. Rising unemployment caused by weak demand for Swedish exports from debt-laden Europe has damped prices.

The Riksbank last month pushed back the timing of its first rate increase, cutting its repo rate forecast to an average 1.15 percent in the fourth quarter of next year from 1.25 percent.

“With the Riksbank’s low inflation forecast and a low risk of overheating,” future “upward revisions of the macro forecast can be made without this directly needing to affect monetary policy,” Skingsley said according to the minutes.

Household Debt

If risks relating to household debt “do not increase and can be managed, the argument of ‘leaning against the wind’ disappears, making it entirely consistent” for “monetary policy to remain unchanged, even in the presence of somewhat stronger economic developments,” Jansson said.

The Riksbank last month predicted household debt will rise to almost 178 percent at the end of 2016 after almost doubling since the mid-1990s mainly because of rising house prices. The bank stopped short of cutting rates over concerns it would propel private debt further amid fears of a housing bubble.

Consumer prices will remain little changed this year, the central bank said. Inflation won’t reach the target until late 2014 as the economy grows 0.7 percent in 2013 and 2.6 percent in 2014, it said. Unemployment will stay at 8 percent this year before falling to 7.8 percent in 2014, the Riksbank predicted.

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