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RIKSBANK

Riksbank chief calls for new financial framework

Stefan Ingves, the head of the Swedish Riksbank, has called on parliament to look over the existing financial regulatory framework - and do so expediently.

Ingves warned the parliamentary finance committee that Sweden should not rest on its laurels now that the financial markets had stabilized.

“The same action and spirit of cooperation displayed during the financial crisis increases the chances of an improved financial framework to establish a more stable base on which to build the future,” Ingves said in a Riksbanken statement.

Ingves repeated that it is now time to leave the record low “crisis” interest rates behind and indicated that the first base rate rises can be expected in the summer or in the beginning of the autumn.

In his speech to the committee, Ingves addressed the problem of the increased risk of continued price inflation in the housing market. Base rate rises are often too blunt an instrument with which to manage the prospect of a house price bubble as they impact the whole economy, he said.

Ingves urged banks to exercise sound judgement when lending money to property buyers and he said that the Financial Supervisory Authority (Finansinspektionen – FI) is considering new regulations for mortgage lending.

“Without wishing to pre-empt the inquiry, let me just state that as far as we can we should handle the problems before they occur. FI’s inquiry would appear to a step in the right direction,” he said.

The Riksbank has also appointed its own inquiry into the state of the Swedish housing market.

Ingves continued in his speech to talk about the economic situation in the Baltic states and the impact on major Swedish banks, which have substantial outstanding loans in the troubled region. He concluded that the situation had stabilized somewhat but that the danger had not passed.

“We are expecting credit losses to reach their peak during 2010, but also that Swedish banks will be able to handle the pressure,” he said.

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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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