Riksbank raises rates
David Landes · 4 Sep 2008, 09:32
Published: 04 Sep 2008 09:32 GMT+02:00
- Sweden holds its breath ahead of Riksbank rate decision (03 Sep 08)
- Swedish economic growth set to contract (27 Aug 08)
- SBAB forecasts interest rate cut (25 Aug 08)
The repo rate now stands at 4.75 percent, and the bank saying it will likely remain there for the remainder of the year.
Fears over Sweden’s rising inflation seemed to be the primary reason for the rate hike, which "is necessary to prevent the high inflation from becoming entrenched", according to the Riksbank’s Executive Board.
The Riksbank expects the higher interest rate to bring Sweden’s inflation rate down to its 2 percent target within a couple of years.
The bank blamed Sweden’s higher inflation, now at levels not seen since the 1990s, on rising food and energy prices.
Despite recent drops in the price for oil and food, the Riksbank feels that inflation expectations, while decreasing, remain too high.
The bank also acknowledged that Sweden’s economy is slowing, something that caused many analysts to believe the Riksbank would leave the repo rate unchanged at 4.5 percent.
Ahead of Wednesday's meeting of the board of governors, analysts were evenly split as to whether the Riksbank would actually raise rates.
"Growth has declined more than anticipated, both in Sweden and abroad," said the bank in a statement.
"Economic activity will continue to slow down and the labour market situation will slacken. The Riksbank’s assessment is that resource utilization... is still slightly higher than normal but will fall during the forecast period."
While the bank doesn’t expect any further changes to the repo rate before the end of the year, it did leave the door open to a possible changes, depending on developments in the global economy.
"The repo rate may, for instance, be higher if cost pressures are higher than expected. However, if the economic developments in Sweden and abroad continue to be weaker than expected, the interest rate may instead need to be lower," it said.