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INTEREST RATE

Sweden cuts repo rate further amid ‘uncertainty’

The Riksbank cut Sweden's benchmark interest rate by a quarter point to 1.5 percent on Thursday, as slower growth in the euro area took its toll on Sweden's economic prospects.

Published: 16 February 2012 10:02 CET
Sweden cuts repo rate further amid 'uncertainty'

According to the Riksbank, Sweden’s economic outlook has weakened due to developments abroad, particularly in the euro area.

“Sluggish growth in the euro area has subdued the demand for Swedish exports, which slowed down significantly in late 2011,” the Riksbank said in a statement, adding that it expected the repo rate to remain at current levels until sometime in 2013.

In addition, Swedish households are saving more and spending less and companies are also putting off planned investments, all of which will contribute to a slower growth rate for the Swedish economy.

The bank forecast economic growth to slow to 0.7 percent in 2012 before recovering somewhat in 2013, when the Riksbank expects the Swedish economy to grow by 2.1 percent.

The weak demand in the Swedish economy and abroad will also keep inflationary pressures low in the coming years, according to the Riksbank, which characterized the future for the Swedish economy as “uncertain”.

“The public-finance problems in the euro area in particular may become more serious and have more negative effects on the Swedish economy,” the Riksbank said.

“In this situation, the repo-rate path may need to be lower. On the other hand, it is possible that confidence in the public finances of the euro countries will recover more quickly than expected. This would call for a higher repo-rate path.”

Tor Borg, an analyst with SBAB bank, said the rate cut was expected, but that the lower forecast for the repo rate path was more aggressive than expected.

“It’s perhaps a bit more offensive than what people had expected,” he told the TT news agency, adding that he agreed with the Riksbank’s assessment of the Swedish economy.

“I very much think they should lower [rates], there’s no reason not to do it. There’s no inflationary pressure, growth is slow and there is huge uncertainty about what will happen in the world.”

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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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