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FINANCIAL CRISIS

Riksbank to cut rates next week: poll

Analysts in Sweden are predicting that the country's central bank will cut rates next week in a bid to alleviate market concerns and ward off an economic slowdown.

Riksbank to cut rates next week: poll

Ten out of 19 analysts polled by Reuters on Friday forecast a quarter percentage point cut to 4 percent, while the others saw the bank on hold. Meanwhile, market players said forward rates indicated markets had fully priced in a cut.

“More than 25 points is priced for in next week. It’s 50/50 whether it will be 25 or 50 basis points,” said Torbjörn Isaksson, analyst at Nordea.

The Riksbank’s next monetary policy meeting is on October 22nd, with the announcement and a monetary policy report released the day after. The final announcement of the year is on December 17th.

On October 8th, the bank cut rates half a point, joining many central banks around the globe in an emergency coordinated move to soften the blow from a widening and deepening crisis.

Early in September — days before the collapse of US investment bank Lehman Brothers sparked a plunge in the world’s financial markets — the Riksbank raised rates for the 13th time since 2006 to address stubbornly high inflation.

Analysts said at that time the hiking cycle was over. But as late as September

25th the majority view in a poll was that rates would start to come down only in

2009.

Swedish annual consumer price inflation has been above the central bank’s 3 percent maximum tolerance level since November 2007. In September, it was

4.4 percent.

The export-dependent country’s once-booming economy has slowed sharply this year, with second-quarter growth a meagre 0.6 percent, and the global crisis has begun hitting the jobs market.

Sweden has taken steps to boost confidence and ease liquidity strains in the financial sector but policymakers and banks have said the banks are solvent and better-equipped than overseas peers to weather the financial storm.

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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