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RIKSBANK

Sweden’s Riksbank raises interest rates

Sweden's Riksbank on Wednesday announced that it has raised the base repo rate by 0.25 percent to 1.75 percent.

Published: 20 April 2011 09:36 CEST
Sweden's Riksbank raises interest rates

The bank announced that the repo rate forecast remained unchanged.

“The Swedish economy remains strong. Underlying inflation is currently low, but is expected to increase as economic activity strengthens. At the same time, CPI inflation is now high as a result of rising mortgage rates,” the Riksbank wrote in a statement.

The Riksbank observed that while underlying inflation remained low in Sweden, it is expected to rise as the rate of wage increases accelerates and spare economic capacity declines.

The bank observed that economic prospects remained largely the same as in February with the repo rate path unchanged in relation to the Monetary Policy Report published in April.

This means that the Riksbank expects a repo rate of 2.5 percent in the first quarter 2012, climbing to 3.2 percent in 2013 and 3.6 percent in 2014.

The Riksbank hiked its growth forecast for 2011. GDP is now expected to climb by 4.6 percent in comparison to a previous estimate of 4.4 percent. The forecast for 2012 has been marginally cut to 2.3, from a previous 2.4 percent.

The Consumer Price Index (CPI) is forecast to climb 3.2 percent this year and 2.8 percent in 2012, up from a previous forecast of 2.5 and 2.1 respectively.

Underlying inflation (CPIF) projections were at the same time cut for 2011, but raise for 2012 and come in just under the 2 percent goal.

Deputy Governors Karolina Ekholm and Lars E.O. Svensson entered a reservation against the decision to raise the repo rate and against the repo rate path of the Monetary Policy Update.

The pair preferred to maintain a repo rate of 1.5 percent and a repo rate path that first rises slower and then faster than that of the Update, to about 3.9 per cent by the end of the forecast period.

Such a repo rate path implies CPIF inflation closer to 2 per cent and a faster reduction of unemployment towards a longer-run sustainable rate.

The minutes from the Executive Board’s monetary policy discussion will be published on May 3rd 2011.

The Swedish krona strengthened marginally against both the US dollar and euro in early trading on Wednesday.

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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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