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Riksbank may put off rate hike

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16:41 CET+01:00
Despite Sweden's strong economy, concerns about international economic conditions suggest that the Riksbank might wait before raising interest rates further.

“The present situation is one of the most difficult to assess that I have experienced during my time at the Riksbank,” said Deputy Governor Lars Nyberg in a speech Monday.

“Developments in the Swedish economy indicate the interest rate should be raised, but the international turmoil implies that it would be better to wait.”

The comments come less then two weeks before the bank's next monetary policy meeting, during which it will consider whether or not to raise Sweden's main interest rate, the repo rate.

In December, the Riksbank hinted that that the repo rate could be raised to 4.25 percent in the first half of 2008.

Currently, the repo rate stands at 4.0 percent.

Nyberg's comments reflect Riksbank concerns about rising inflation as well as worries that uncertainty in international financial markets may be deeper and longer lasting then earlier believed

Swedish bank SEB interpreted Nyberg's comments as more hawkish than expected, asserting that a rate hike may still be on the agenda.

According to SEB, markets have been too quick to price in a drop in interest rates and the Riksbank doesn't yet want to confirm these expectations.

SEB also noted Nyberg's decision to break the Riksbank's customary silence about monetary policy deliberations as further evidence that the bank believes markets have gotten ahead of themselves.

However, Nyberg himself did not consider his speech a departure from the Riksbank policy of not sending signals about the direction of monetary policy ahead of scheduled meetings.

“I simply want to explain the difficult adjustments we now face,” he told journalists before his speech.

He pointed out further that his comments simply reflected how he judged the situation, and that he couldn't speak for how other bank governors may behave with respect to interest rates.

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