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RIKSBANK

Sweden’s Riksbank set to raise interest rates

Sweden's Riksbank is expected to hike base interest rates on Tuesday, with more rate increases expected for the coming months.

Published: 15 February 2011 07:58 CET

Most observers agree that when the Riksbank announces the results of its deliberations today, it will be announced that the repo rate will be increased by 0.25 percentage points to 1.50 percent.

The move is set to be the first of several moves to tighten monetary policy in the coming months with the Riksbank’s December forecast indicating that the repo rate will be at 2.9 percent during the last quarter of 2012.

As a result of the expected rate increases, the cost of an average mortgage is set to climb 2,300 kronor ($354), based on a calculations by Nordea bank developed on behalf of TT’s behalf, for a one-year fixed rate mortgage of 2.8 million. Over the court of a year a family will have to find an extra 28,000 kronor to service their mortgage.

“I will follow the interest rate announcement, but without biting my nails. We can handle a pretty hefty increase, our variable-rate loans have been as high as 5.5 percent,” said Kristin Lärje, silversmith, mother of two and mortgage holder.

The Lärje family also includes father John who is an AV technician at a museum, 12-year-old son Vill, and daughter Nin who is five-years-old. They live in a yellow, polished semi-detached house of approximately 100 square metres in the suburb of Enskede in Stockholm, which they bought eleven years ago.

Nordea family economist Ingela Gabrielsson, is among the market analyst forecast that for the Lärjes and families like them, higher housing costs are in store.

“We are facing a series of interest rate increases, all the forecasts say so and that is what we will use as a base (for our credit decisions), said Gabrielsson.

After having enjoyed a long period of record low interest rates in the wake of the finance crisis, Gabrielsson warned that many families should review their finances.

“The important thing now is that you can county realistically on what the interest rate hikes may cost while looking over savings and may be investigate if there are any other monthly expenses you can cut back on.”

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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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