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RIKSBANK

Riksbank raises base rate to 0.75 percent

Sweden's Riksbank has raised the repo rate by 0.25 percentage points to 0.75 percent, a decision which was widely forecast.

Published: 2 September 2010 09:32 CEST
Riksbank raises base rate to 0.75 percent

Sweden’s economy is continuing to show good strength, several recent reports have indicated, with low inflationary pressures which are expected to increase as the economy continues to rebound.

The rate was thus raised in order to attain the inflation target of 2 percent in the longer term, although analysts questioned whether the current low crisis rates were becoming indicative of more normal recession level rates.

“The interest rate should be hiked from today’s crisis rates to a more normal recession level rate,” said Elisabet Kopelman, an SEB analyst said ahead of the decision.

The decision is likely to impact on variable mortgage interest rates, which have begun to climb from record low levels in recent months in anticipation of the Riksbank decision.

The Riksbank last raised the repo rate in June from 0.25 to 0.5 percent, the first climb since shortly before the finance crisis broke out with the collapse of US investment bank Lehman Brothers in September 2008.

The bank’s monetary policy update in June, which indicated an easing of the repo rate path to indicate that rates would rise at a slower pace than previously indicated, remains unchanged.

Riksbank governor Stefan Ingves has previously warned households to expect variable mortgage rates of around 6 percent in a couple of years.

Deputy governor Lars E O Svensson entered a reservation against the decision to raise the repo rate to 0.75 percent, and against the repo rate path in the current monetary policy update. Deputy governor Karolina Ekholm entered a reservation against the repo rate path.

Svensson would have preferred to see the rate remain at 0.5 percent, with the rates peaking at 1.75 percent by the end of 2011, while Ekholm preferred a flatter rate path culminating around a percent lower than currently project in the monetary policy update.

Ekholm argued that weaker development overseas could be expected to impact in growth and inflation in Sweden.

Inflation, measured with the consumer price index, is projected to amount to 1.1 percent in 2010, rising to 1.9 percent in 2011 and 2.5 percent in 2012.

Repo rates are projected to climb to 0.9 in the fourth quarter, to 1.9 percent by the end of 2011 and to an average of 3 percent in 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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