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INTEREST RATE

Sweden’s Riksbank cuts base interest rate

The Swedish central bank (Riksbank) has cut its main base (repo) interest rate by 0.5 points to 0.5 percent.

Published: 21 April 2009 09:57 CEST
Sweden's Riksbank cuts base interest rate

The lower interest rate and interest rate path are necessary to dampen the fall in production and employment and to attain the inflation target of 2 percent.

The repo rate is expected to remain at a low level until the beginning of 2011, the Riksbank wrote in a press release on Tuesday.

The Riksbank wrote that the economic downturn is worsening and the fall in global economic activity has hit Sweden hard with exports significantly down towards the end of last year.

The labour market has deteriorated further and household consumption is weak, the Riksbank concluded, revising its previous forecast.

“The outcomes and confidence indicators published in recent months point to the economic downturn being even deeper than the Riksbank had forecast in February.”

The Riksbank informed that there is “some probability of further cuts in the future” but warned that “when the repo rate is at such low levels, one must consider the fact that this could have negative effects on the functioning of the financial markets.”

But there were some signs of optimism in the Riksbank’s comments. The weaker krona will stimulate the economy and “positive but low growth” was forecast for 2010.

It is reported that the Riksbank board members were not united in the decision to cut rates by 0.5 percent with Lars E.O Svensson recommending a larger cut, down to 0.25 percent.

The Riksbank forecast that rates would rise to 0.8 percent in the first quarter of 2011 and rise to 3 percent by 2012.

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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.

Published: 16 March 2023 16:20 CET
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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