Optimistic Riksbank leaves rates unchanged

The Swedish Riksbank said it has left interest rates unchanged at 1.5 percent.

The decision was in line with market expectations, as recorded by SME Direkt.

The bank said the decision was based on its assessment that inflation will be close to its target level of 2 percent in a couple of years from now.

Consumer prices rose just 0.6 percent in September from a year earlier, according to Sweden’s statistical bureau, however the Riksbank said that although inflation remains low it has started to rise. It expects this trend to continue.

“The assessment is, as before that inflation will rise, but at a fairly modest rate,” it said, adding that initially this will be driven by higher oil prices and further along in the forecast period by rising capacity utilisation in Sweden and abroad, and a decline in the effects of price dampening factors.

The bank said the slowdown in the Swedish economy seen at the start of the year was temporary. It said growth in private consumption has started to increase and is expected to strengthen further in the coming years. It also expects public sector consumption to increase particularly in 2006.

The bank forecasts in its accompanying inflation report that full year CPI will be 0.5 percent in 2005, 1.5 percent in 2006, and 2.1 percent in 2007.

It also sees GDP growing by 2.3 percent in 2005, 3.0 percent in 2006, and 2.5 percent in 2007.