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Interest rates "set to double"

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16:56 CET+01:00
High growth this year and next means interest rates are likely to double by the end of 2007, according to Swedish state-owned mortgage lender SBAB.

The prediction is part of a wide-ranging economic prognosis from SBAB. The company says Sweden's GDP will increase by 3.2 percent in 2006 and 2.8 percent in 2007.

“The Swedish economy is developing very favourably," says Tomas Pousette, analyst at the lender.

“The number of people in work will rise by 80,000 over the 2006 and 2007 and the increase in inflation will be small.”

Official unemployment rates are unlikely to fall significantly, even though the number of people in work will increase. This is explained the large number of people expected to join the job market during the period. These people are currently studying or are off the job market for other reasons.

“We calculate that quite a lot of people like this are going to appear over the next few years,” says Pousette.

Rises in inflation will be small, with the consumer price index rising to 2.1 percent by the end of 2007. The Swedish Riksbank's inflation target is 2 percent.

SBAB predicts that inflation will be kept down by substantial increases in interest rates by the Riksbank. The first rise will come on Friday, followed by a further 2 increased before the summer, to 2.25 percent. By the end of next year, rates will be at 3.25 percent, more than double today's rate of 1.5 percent.

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