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Sweden raises interest rate by 0.25 percent

David Landes · 26 Oct 2010, 09:36

Published: 26 Oct 2010 09:36 GMT+02:00

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“The Swedish economy is growing rapidly. Inflationary pressures are low, but are expected to increase as economic activity strengthens,” the Riksbank said in a statement.

The Riksbank added, however, that it doesn’t expect to raise rates much “in the coming years” due to “weak developments overseas”.

The move marks the third consecutive boost for Sweden’s benchmark interest rate, bringing it back to a level not seen since April 2009 when the Riksbank halved rates from 1 percent to 0.5 percent.

In explaining its decision to raise rates by a quarter-point, the Riksbank said that Sweden’s economy is “developing well”, displaying positive signs in terms of public finances, household savings, and consumption. Employment has also picked up rapidly as a result, according to the Riksbank.

But the Riksbank also argued that economic uncertainty abroad needed to be taken into account.

“The recovery will take time in the United States, while the major fiscal policy tightening measures in several European countries are dampening growth in Europe. The slow recovery of these countries is leading to moderate inflationary pressures and low international interest rates,” said the bank.

Questions about the pace of economic recovery overseas also led the Riksbank to lower its forecast for how Sweden’s repo rate may be adjusted in the future.

“All in all, developments abroad, together with the low inflationary pressures prevailing in Sweden during the forecast period, argue against the need to raise the repo rate as rapidly in the coming years,” said the Riksbank.

The Riksbank now projects the repo rate to reach 1.3 percent in the first quarter of 2011, compared with a previous forecast of 1.4 percent.

Story continues below…

By the final quarter of 2011, the bank expects Sweden’s benchmark rate to reach 2.0 percent, down from the 2.4 percent included in earlier forecasts.

A year later, at the end of 2012, the repo rate is expected to climb to 2.9 percent, compared with an earlier forecast of 3.3 percent.

David Landes (david.landes@thelocal.se)

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Your comments about this article

11:02 October 26, 2010 by N18h7m4r3
I am fukc-ed
12:10 October 26, 2010 by RJMitchell
This is 100% the right move!
12:43 October 26, 2010 by Mib
No surprise is it. If it is, you're with stupid or badly advised. It is a good move to ensure rates remain stable and don't jump quickly in future years. Combined with the new rules on borrowing ...borrow max 80% of property price...then the signs are we should see a nice gradual rise and less risk of spikes up or down.....which we all want i presume.
13:41 October 26, 2010 by Localer
max 80% ? i thought max 85% ?
17:19 October 26, 2010 by McChatter
Finally the Riksbank takes the developments overseas into account and not just domestic house prices.

As for their projections for 2011 and 2012.........you pays your money and takes your pick.
12:24 October 27, 2010 by MIK in Sweden
oh no

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