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RIKSBANK

Riksbank expected to leave repo rate unchanged

The Swedish Riksbank is seen leaving the repo rate unchanged at 3.25 percent at its monetary policy meeting on Thursday.

The unchanged rate is forecaset after the bank cut its CPI forecast for 2007 to 1.5 percent from 2.0 percent in its last inflation report, and signalled a cautious approach to future rate hikes, said economists polled by AFX.

The Riksbank hiked the repo rate by 25 basis points in February and said it believes it will need to be raised by a further 25 basis points within the next 6 months.

However governor Stefan Ingves said in a speech last week that the bank will take a ‘moderate’ approach to rate hikes leading analysts to forecast it will not raise them again until its June inflation report.

“We think they will keep rates on hold on March 29th. The signals in the bank’s February report were clear, they see very low inflation despite strong growth,” said Torbjorn Isaksson, economist at Nordea.

Sweden’s low inflation is due in part to low cost pressures in the last couple of years up to and including 2006 on slow growth, which also pushed up unemployment and reduced wage pressure. High productivity growth, cheap imports and healthy domestic competition have also played an important part.

With the Swedish economy now recovering strongly, Isaksson sees wage and other cost pressures picking up slightly ahead.

“But it’s still more of a normalisation of cost pressure, and we don’t think that inflation will be problematic, and hence the Riksbank can keep rates rather low,” he said.

As such economists don’t currently see the Riksbank hiking again after its June meeting for the remainder of the year.

Isaksson expects the important UND1X inflation index to fall to 0.5 percent by the middle of the year from slightly above 1 percent today, due to electricity prices.

“After that, we do believe that domestic inflation will pick up. But the starting point is very low, and the increase will be slow,” he said.

“Competition is very strong both in Sweden and in the world so its difficult for producers to raise prices,” he added.

The bank will announce the outcome of its monetary policy meeting on Friday March 30th at 9.30am.

AFK

ECONOMY

Sweden’s Riksbank raises rates above zero for first time since 2014

Sweden's central bank has increased its key interest rate to 0.25 percent, marking the first time the rate has been above zero for nearly eight years.

Sweden's Riksbank raises rates above zero for first time since 2014

In a press release announcing the move, the bank said that it needed to take action to bring down the current high rate of inflation, which it predicts will average 5.5 percent in 2022, before sinking to 3.3 percent in 2023.

“Inflation has risen to the highest level since the 1990s and is going to stay high for a while. To prevent high inflation taking hold in price and wage developments, the directors have decided to raise interest rates from zero to 0.25 percent,” it said. 

The Riksbank, which is tasked by the government to keep inflation at around two percent, has been caught off-guard by the speed and duration of price rises.

Just a few months ago, in February, it said it expected inflation to be temporary, predicting there was no need to increase rates until 2024.

The last time the key inflation rate was above zero was in the autumn of 2014. 

In the press release, the bank warned that the rate would continue to increase further in the coming years. 

“The prognosis is that the interest rate will be increased in two to three further steps this year, and that it will reach a little under two percent at the end of the three-year prognosis period,” it said. 

According to the bank’s new future scenarios, its key interest rate will reach about 1.18 percent in a year, and 1.57 percent within two years. 

In a further tightening of Sweden’s monetary policy, the bank has also decided to reduce its bond purchases. 

“With this monetary policy we expect inflation rates to decline next year and from 2024 to be close to two percent,” the bank wrote. 

Annika Winsth, the chief economist of Nordea, one of Sweden’s largest banks, said the rate hike was “sensible”. 

“When you look at how inflation is right now and that the Riksbank needs to cool down the economy, it’s good that they’re taking action – the earlier the better. The risk if you wait is that you need to righten even more.” 

She said people in Sweden should be prepared for rates to rise even further. 

“You shouldn’t rule it out in the coming year. Then you’ll have a once percentage point increase which will go straight into fluctuating mortgage rates.” 

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