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Borg forecasts major interest rate cut

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18:52 CEST+02:00
Sweden's Finance Minister Anders Borg has predicted that the Riksbank will cut its benchmark interest rate over the next year to a level much lower than that anticipated by analysts.

Citing a reduction in social contribution fees paid by employers as the main cause, Borg said he expected the repo rate to fall from today's 4.75 percent to 3 percent a year from now.

The Finance Department expects the rate to level out in 2010 at 3.25 percent.

"This is connected to the fact that we have budgeted for lower social contribution fees, which will affect wage costs by one percentage point in 2009. This in turn will have an effect on underlying inflationary pressures," Borg told news agency TT.

The Finance Minister explained that proposed lower charges for employers could be regarded as equivalent to a one percentage point cut in wage levels agreed on in the most recent round of collective bargaining.

Mortgage holders with variable exchange rates are expected to be among the main beneficiaries should the Riksbank choose to heed Borg's prediction.

The Swedish central bank has so far not indicated a drop anything like as precipitous as that advocated by Borg. In its most recent statement on the matter, the Riksbank said it expected the repo rate to fall to 4.3 percent by the third quarter of 2010.

The National Institute of Economic Research (Konjunkturinstitutet) is trading the middle ground between the minister and the central bank. It expects the Riksbank to cut the repo rate to 3.75 percent in 2009 and 3.50 percent in 2010.

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