Interest rates to stay low until autumn 2010

Interest rates to stay low until autumn 2010
Riksbank chief Stefan Ingves
Sweden’s central bank has pledged to hold its benchmark interest rate, the repo rate, at 0.25 percent until next autumn in a bid to keep interest rates low for business and households.

The repo rate is the discount rate at which the central bank repurchases government securities from the commercial banks. A low repo rate mean that banks can swap their holdings of government securities for cash cheaply, which increases the money supply and puts downward pressure on general interest rates.

While the Riksbank noted signs of a turnaround in the economy, it said the recovery is from a low level, and so its decision to keep interest rates low should continue to stimulate the economy. The central bank expects the rate to remain at 0.25 percent until autumn 2010.

The Riksbank also announced further measures that should lead to lower interest rates for both companies and households: “The Riksbank has decided to offer further loans totalling SEK 100 billion to the banks at a fixed interest rate and with a maturity of approximately 12 months. This should contribute to continued lower interest rates on loans to companies and households,” the central bank said in a press release.

While the Riksbank believes that Sweden will return to positive economic growth by the end of the year, it does not see the job market improving until 2011.

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