Riksbank raises interest rates

The Local
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Sweden's central bank has raised interest rates by 0.25 percent to 1.75 percent, in a move that had been widely predicted.


The Riksbank made its decision to raise the repo rate on Thursday at a meeting of the monetary policy committee, and announced the rise on Friday morning.

The repo rate has remained unchanged since last June, when it was reduced by half a percent.

"In the inflation report in December, we judged that international growth this year and in the years to come would be good, but would taper off somewhat. Information received since that indicates that development will be stronger than expected," the Riksbank wrote in a press release.

The bank points to a number of growth indicators which give signals of stronger than expected growth in the future.

"An upwards revision of the prognosis for GDP growth in 2005 and 2006 can therefore be justified," the Riksbank wrote.

The situation on the job market is starting to look a little more promising, the bank says. It notes that the number of people in work is growing and that the number of newly-advertised job vacancies is continuing to increase. On the other hand, the increase in the number of hours worked has been surprisingly weak, meaning stronger productivity growth than expected.

"This indicated that pressure on prices will be muted, despite higher production growth," the Rikksbank said.

In December, the bank said that inflation would rise gradually as consumption grew to meet the 2 percent inflation goal. The bank says it stands by the judgment it made on inflation in December.

"With the information we have available today, an increase in the repo rate is appropriate, approximately in the way that the market has expected over recent weeks."

The bank also sounded a warning about developments on the housing market.

"As earlier there is cause to pay heed to rising household debt and continued rapid increased in house prices."

TT/The Local


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