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INTEREST RATE

Sweden cuts repo rate as economy slows

Sweden's slowing economy and dampened concerns about inflation prompted the Riksbank to cut the country's benchmark interest rate by 0.25 percent to 1.25 percent on Thursday.

Published: 6 September 2012 09:44 CEST
Sweden cuts repo rate as economy slows

The Riksbank added that it expected the repo rate to remain at its current level until the middle of next year.

While the Swedish economy has been surprisingly robust through the first half of 2012, the country’s central bank said reduced demand from the euro area is dampening exports and weakening GDP growth.

“The Riksbank noted in July that inflationary pressures in the Swedish economy were low and that monetary policy thus needed to be expansionary,” the bank said in a statement.

“Since then, the krona has appreciated faster than expected and productivity in the Swedish economy has also been unexpectedly high. All in all, this means that inflation will be lower in the coming period, compared with the assessment in July.”

In explaining the need to cut rates further, the Riksbank said it wanted to “prevent inflation from being too low in the coming period”.

The bank added it plans on raising the repo rate gradually as economic conditions improve later next year in order to help the Riksbank reach its 2 percent target level for inflation.

But uncertainly about the eurozone “could have further negative effects on the Swedish economy”, the bank warned.

“However, the Swedish economy has so far been unexpectedly resilient and confidence among Swedish households and companies may also rise faster than expected,” the Riksbank said.

TT/The Local/dl

twitter.com/thelocalsweden

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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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