‘No housing bubble in Sweden’: central bank

Sweden's central bank, the Riksbank, does not see a housing bubble or bubble-like behaviour in the housing market, according to a high-ranking official at the institution.

'No housing bubble in Sweden': central bank

However, Riksbank vice director Barbro Wickman-Parak sees growing household debt as a problem.

“But this is a difficult matter. One cannot exclude that there is a certain overvaluation that may be due to some over-optimism in terms of the continuing development of interest rates,” she said at a hearing on the development of the housing market by Sweden’s parliament’s, the Riksdag’s, finance committee.

Wickman-Parak said that the growth in Swedish household debt was alarming. Borrowing is increasing by 8 percent per year, which is unsustainable at current levels.

“We have a debt ratio that we have not seen anything equivalent to,” she said.

Wickman-Parak added that it is difficult to tackle the developments in the market simply by sticking to the inflation target. However, interest rates must be raised to meet the inflation target, as well as to dampen household borrowing.

Despite the warnings, Financial Markets Minister Peter Norman sees no immediate threat of a bubble developing in the housing market.

“There is no immediate threat to financial stability, but we are concerned that the threat could extend in the future,” he said.

Norman singled out the housing market, household debt and bank expansion as three worrying factors.

According to Norman, there are several measures that the government can resort to if it becomes necessary, but there is no need for them so far. Without specifying what could be done in the first place, Norman suggested several possibilities.

They include reducing the opportunities for the deduction of interest expenses, abolishing interest deductions for consumer credit, amortisation requirements, changes in capital coverage requirements for banks and stamp duty.

“There are a large number of tools and the government is largely prepared to intervene,” he said.

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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.”