What Sweden’s rising interest rate means for those who live here

What happened?

Sweden's central bank on Thursday raised the country's key interest rate – the repo – from -0.25 to zero percent. It's the first time in almost five years that the rate is not below zero.

Why did they do this?

The central bank, also known as the Riksbank, first took the landmark decision to slash the repo rate below zero in February 2015, hoping that the strategy would boost inflation to raise the price of everyday goods and services which had been stagnant in recent years, and therefore improve Sweden's economic prospects.

Were Sweden's economic prospects bad to begin with?

The country's economy has been growing in recent years on the whole. But the inflation rate has been low, and the Riksbank has been wanting to bring it back to its target of two percent.

The inflation rate has now been close to that target since the start of 2017, so the Riksbank thinks the time has come to slowly hike the repo rate to non-negative levels.

But the board was not unanimous, with two of its six members arguing that they should have waited a little while longer before raising the interest rate.

How did the market react?

Sweden's weak krona received a slight boost on the back of the news, but the decision was largely expected, so there were no major market reactions by noon on Thursday.

How does this affect me?

The main noticeable effect this is likely to have on the ordinary consumer is that if you are a home-owner you may see the interest on your mortgage rise, at least if you have an adjustable-rate mortgage. If you're on a fixed-rate mortgage, your interest rate will stay the same until it is time to renegotiate your mortgage. 

So if you are thinking of buying property, should you get a fixed-rate or adjustable-rate mortgage?

It's hard to say, and depends a lot on your own preference. The latter usually works out cheaper in the end, but is far more vulnerable to fluctuations and does require you to pay more attention to your mortgage.

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Many buyers often choose to split their mortgage into several parts, where some are on a fixed rate and some on an adjustable rate. In Swedish this is called fast or rörlig ränta. Don't be afraid of shopping around, and if you are a member of for example a trade union, make sure you check if it has a deal with a bank for lower interest on mortgages. If you can negotiate a low rate, you can save a lot of money.

But before you make any major financial decisions, it may be worth noting that it will probably take some time for the repo rate to keep increasing. According to the Riksbank, it is expected to remain at zero until 2022, when it may be raised to 0.1 percent. And if the economy doesn't grow as expected, it may be cut again.

That said, do keep an eye on your debts and changes to your interest rates. The Riksbank warns: “Swedish households are heavily indebted and thereby sensitive to changes in economic conditions. In order to reduce the risks linked to household indebtedness and address the structural problems on the Swedish housing market, measures within housing and tax policy and appropriate macroprudential policy are required.”