Swedish Central Bank Has Reached Bottom on Rates, Survey Shows

Sweden’s central bank has reached bottom on interest rates after cutting its benchmark deep below zero, according to a survey.

The bank will keep rates below zero until at least the first quarter 2018, according to a majority of respondents in a Bloomberg survey of 41 economists. That rhymes with the Riksbank’s own forecast that rates won’t go positive until early 2018. It’s about the same time as the European Central Bank, though earlier than the Swiss National Bank, Bank of Japan and Danish National Bank, according to the survey.

“There’s a risk that they will have to backtrack on this very aggressive interest rate policy because the Swedish economy is actually doing quite well,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics Ltd. He predicts the Riksbank may be back in positive territory as early as the fourth quarter this year.

The central bank has come under increased pressure to stop easing after the economy grew an annual 3.9 percent in the third quarter. A report this week also showed underlying inflation accelerated more than expected to 1.6 percent in January, the highest level in more than four years, closing in on the 2 percent target.

Still, according to the survey, only 41 percent of the economists believe the Riksbank’s stimulus efforts will prove effective. That compares with 42 percent for the ECB and 27 percent for the BoJ.

The Riksbank cut rates to minus 0.5 percent from minus 0.35 percent last week out of fear that doing nothing would strengthen the krona to levels incompatible with returning inflation to target. Consumer price gains haven’t been in line with the target at any point in the last five years.

“You have a policy here that’s trying to drive the krona down but look at what happened to Switzerland,” said Alan McQuaid, chief economist at Merrion Capital in Dublin. “They tried to defend the currency and it didn’t work, so ultimately you will have to make changes. Sweden is in a better position than the eurozone” to raise rates, he said.

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