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FINANCE

Riksbank raises rates

Sweden’s Riksbank has raised its benchmark interest rate by 0.25 percent.

Riksbank raises rates

The repo rate now stands at 4.75 percent, and the bank saying it will likely remain there for the remainder of the year.

Fears over Sweden’s rising inflation seemed to be the primary reason for the rate hike, which “is necessary to prevent the high inflation from becoming entrenched”, according to the Riksbank’s Executive Board.

The Riksbank expects the higher interest rate to bring Sweden’s inflation rate down to its 2 percent target within a couple of years.

The bank blamed Sweden’s higher inflation, now at levels not seen since the 1990s, on rising food and energy prices.

Despite recent drops in the price for oil and food, the Riksbank feels that inflation expectations, while decreasing, remain too high.

The bank also acknowledged that Sweden’s economy is slowing, something that caused many analysts to believe the Riksbank would leave the repo rate unchanged at 4.5 percent.

Ahead of Wednesday’s meeting of the board of governors, analysts were evenly split as to whether the Riksbank would actually raise rates.

“Growth has declined more than anticipated, both in Sweden and abroad,” said the bank in a statement.

“Economic activity will continue to slow down and the labour market situation will slacken. The Riksbank’s assessment is that resource utilization… is still slightly higher than normal but will fall during the forecast period.”

While the bank doesn’t expect any further changes to the repo rate before the end of the year, it did leave the door open to a possible changes, depending on developments in the global economy.

“The repo rate may, for instance, be higher if cost pressures are higher than expected. However, if the economic developments in Sweden and abroad continue to be weaker than expected, the interest rate may instead need to be lower,” it said.

ECONOMY

Riksbank deputy ‘open to reconsidering raising rates in April’

Martin Flodén, the deputy governor of Sweden's Riksbank, has questioned whether the central bank needs to bring in further rate rises in April, following bank runs on two niche banks in the US and a crisis of confidence at Credit Suisse.

Riksbank deputy 'open to reconsidering raising rates in April'

Uncertainty in the financial market following bank runs in the US and a crisis at Swiss bank Credit Suisse could have changed the playing field, he told TT in an interview. 

“It affects which level the key interest rates need to be in order to have a contractive effect,” he said, referring to the recent days of financial market turbulence. “We can’t just look at key interest rates by themselves. It’s the key interest rate in combination with all of these developments which determines how tight financial policy will be.”

He said it was not yet obvious what decision should be taken. 

“It’s clear that monetary policy needs to stay tight, but what level of interest is that? We need to assess all of the current developments there.” 

‘Could go in different directions’

In theory, there could be such a serious financial crisis, with such a severe effect on lending and banks’ financing costs, that the central bank would be forced to adopt supportive measures, even lowering the key rate.

Flodén doesn’t think Sweden is in that situation, although he thinks there’s a possibility it could happen.

“It’s not something I can see happening right now, at least, although this could go in different directions.” 

He added that he doesn’t see any reason for any “special concern”, toning down the risk that a crisis for two smaller niche banks in the US and at Credit Suisse could affect the Swedish financial system.

“Of course, it could lead to some stress, but there aren’t actually any particular signs in Sweden, which are worrying me,” he said. 

Flodén is one of six members of the Riksbank executive board, led by Riksbank chief Erik Thedéen, responsible for making a decision on whether interest rates will go up again at the end of April.

The Riksbank has indicated that a rate hike of between 0.25 and 0.5 percent from the current 3 percent rate could be necessary.

Flodén described the most recent inflation statistics for February, where inflation unexpectedly rose to 12 percent, as “not good at all”. So-called KPIF inflation, where the effect of mortgage rates is removed, rose from 9.3 percent to 8.7 percent in January. The Riksbank’s goal is 2 percent.

“It’s clear that inflation is still far too high and that monetary policy needs to be focussed on combatting inflation,” he said, adding that inflation statistics for March will be released before the central bank is due to make a decision on whether to raise rates or not in April.

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