Sharp interest rate rises in late 2010: report

Homeowners will have less spending power by the end of the year according to a new report from state-owned mortgage lender SBAB, which predicts the Riksbank will begin a sharp interest rate increase in the autumn.

The report states that Sweden’s central bank will to start to raise the benchmark repo rate from its current record low 0.25 percent after the summer.

Tomas Pousette, SBAB’s chief economist, adds that the repo increase will continue sharply into 2011 with mortgage interest rates set to follow.

“The bottom for longer-term fixed mortgages has been reached and they will start to rise during the first six months of 2010,” he said.

“By the end of 2011 we expect that three-monthly interest rates will have risen to around 3.5 percent,” he says.

By December 2010, SBAB estimates that interest on a quarterly-fixed mortgage will be around 2 percent, rising to 3.35 percent in 12 months time.

For mortgages fixed over a 24-month period the estimated 3.65 percent interest will rise to 4.95 percent and five-yearly fixed mortgages will go from 4.90 percent to 5.50 percent.

According to Pousette, the anticipated repo rate rises can be attributed to the Riksbank’s optimistic outlook for an economic upswing in the next year.

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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.”