Sweden’s Riksbank set to raise interest rates

Sweden's Riksbank is expected to hike base interest rates on Tuesday, with more rate increases expected for the coming months.

Most observers agree that when the Riksbank announces the results of its deliberations today, it will be announced that the repo rate will be increased by 0.25 percentage points to 1.50 percent.

The move is set to be the first of several moves to tighten monetary policy in the coming months with the Riksbank’s December forecast indicating that the repo rate will be at 2.9 percent during the last quarter of 2012.

As a result of the expected rate increases, the cost of an average mortgage is set to climb 2,300 kronor ($354), based on a calculations by Nordea bank developed on behalf of TT’s behalf, for a one-year fixed rate mortgage of 2.8 million. Over the court of a year a family will have to find an extra 28,000 kronor to service their mortgage.

“I will follow the interest rate announcement, but without biting my nails. We can handle a pretty hefty increase, our variable-rate loans have been as high as 5.5 percent,” said Kristin Lärje, silversmith, mother of two and mortgage holder.

The Lärje family also includes father John who is an AV technician at a museum, 12-year-old son Vill, and daughter Nin who is five-years-old. They live in a yellow, polished semi-detached house of approximately 100 square metres in the suburb of Enskede in Stockholm, which they bought eleven years ago.

Nordea family economist Ingela Gabrielsson, is among the market analyst forecast that for the Lärjes and families like them, higher housing costs are in store.

“We are facing a series of interest rate increases, all the forecasts say so and that is what we will use as a base (for our credit decisions), said Gabrielsson.

After having enjoyed a long period of record low interest rates in the wake of the finance crisis, Gabrielsson warned that many families should review their finances.

“The important thing now is that you can county realistically on what the interest rate hikes may cost while looking over savings and may be investigate if there are any other monthly expenses you can cut back on.”

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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.”