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Sweden’s Riksbank raises interest rates

TT/Rebecca Martin · 5 Jul 2011, 09:59

Published: 05 Jul 2011 09:59 GMT+02:00

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The intent is to stabilise inflation around the target of 2 per cent and resource utilisation around a normal level. The forecast for the repo rate is so far held unchanged.

Two of the Riksbank’s deputy governors, Karolina Ekholm and Lars E.O. Svensson entered a reservation yet again against the decision to raise the repo rate and against the repo rate path of the Monetary Policy Report.

The two deputy governors, who chose to enter a reservation against the Riksbank’s decisions to raise rates in April, preferred a repo rate equal to 1.75 per cent and a repo rate path that first rises slowly to 2 per cent in the third quarter of 2012 and then rises faster to about 3.8 per cent by the end of the forecast period.

This is motivated by their assessment that the Report’s forecasts of foreign policy rates and Swedish resource utilization are both too high.

Their repo rate path would imply CPIF inflation closer to 2 per cent and a faster reduction of unemployment towards a longer-run sustainable rate.

The minutes from the Executive Board’s monetary policy discussion will be published on 18 July 2011. The decision on the repo rate will apply with effect from 6 July

Story continues below…

“This decision was expected, it is a raise and an unchanged repo rate path. And two entered a reservation, just like last time,” said Tor Borg, analyst at Swedish bank SBAB to news agency TT.

TT/Rebecca Martin (news@thelocal.se)

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Your comments about this article

12:59 July 5, 2011 by Mib
Good! The sooner interest rates are raised, the sooner they will come down in the future. However, blindly targetting an inflation at 2%, when external factors such as a booming china etc are raising prices on most commodities is a bit blinkered. As rasing interest rate will have some effect, but overall not much when there are external factors raising prices rather than demand internally in Sweden.
18:56 July 5, 2011 by Acero
Cant agree with ya there Mib!

The sooner the rate can come down??...the Swedish rate is at home ca. 4%. They are a country who have their own currency for their own economy. All things being equal (and this being boring boring Sweden it will probably be..) the rate will get to somewhere about 5% before it will come down(i'm not saying it will get to 5). Again, all things being equal with good home economy and generally mild-to-poorly decent world growth economic growth.

Booming China...like in early 08...commodities have reached the maximum level they can hit counting in 3-4 years worth of inflation (non event really). The reason prices are coming higher out of china is because of increased export taxation, increased quality of living there and the sky high price that needs to be paid for transportation. You or the man on the street who buys a coffee with his paper probably wont notice it but for anyone who's plugged in and has a tangible feel of whats going on, china are raising costs to cover their expansion. Manufacturing back to American and Europe by 2055...or just somewhere cheaper than China!!

I say keep the interest rates low and let swedes enjoy the party in their own back yard for once!!
12:39 July 6, 2011 by Mib
Well we will see The UK has not raised rates for a long time and that may come back to haunt them when inflation grows further due to growth in the economy whenever that may be. However, banks have been charging over the ods in the UK and we'll see how they react to future increases as their margin is massive at the moment, uness you have a vry large capital investment to put into a property. I want rates to increase even more in Sweden, so we don't get a shock in the future where rates spike and that is the real risk to any economy. However, you ill hav noticed that longer term fixed rates have actually fallen over the last few months as the markets predict base rates topping out at say 3.5 to 4%.

China is raising prices for most commodities as their nation grows wealthier which means of course, wages rising, which leads to consumption of western type diets ie. consuming more milk, wheat, vegetables etc etc. With China's great expansion, oil prices have risen, steel, iron etc etc. India is of course doing th same on a smaller acale than China. So, with short term foresight of the Wesern world, they have not invested in new oil refineries and more to accommodate greater demand and hence record rises in commodities. China is investing/buying mining rights etc massively in Africa and elsewhere as they need to ensure their demand increases and in the longer term will be cheaper than relying on the current short sighted infrastructures in the West..
16:14 July 6, 2011 by Acero
yeah,....well, the UK is a basket case of a place! If they tried to increase the rate in England they'd kill the place. I didnt really get much from your two paragraphs except for the fact that I could read those lines in a business studies book from a high school class. Full of obvious statements really.

The UK wont know what real growth is for the next few years as there is economy is about 5 speed.

The Swedes should do what the Aussies WERE doing before they got greedy and (true to aussie form) wanted to be like europe and have a property bubble of their own...and keep interest rates exceptionally high. Sweden, as one of the leading economies in Europe at the moment (stressed) needs to lead the way in this and start increasing rates by the 1/4. For the main reason, as you stated, to avoid any shocks in the future. Thats the oversight conclusion but there are many many day to day positives of them doing this....like keeping consumer prices and house prices (which in terms of debt is already a bad system in sweden) in "check" (over-priced/over mortgaged/ no realisation of asset in full)

Would long term fixex rates not rise if the market predicted a base of 3.5-4, given that that is an increase?? I'm not clued in on this but my head is telling me (exacmple) if the current B.R is 1 and the FR is 3....and the bank thinks the BR will go to 3....they wont DECREASE the FR.......they'll price that in!! Maybe cite a back up to that statement as it sounds very odd and runs completely counter to what all other countries are doing in relation to their own fixed rates. Personally I think banks are scared sh*tless of fixed rates with all the volatility in the market and as such and pricing themselves out of F.R.'s altogether. Ask anyone from a country in europe who is even mildly struggling.

Chinas biggest problem is two areas. Health and Safety Laws coming in and pollution control.....OH! and local government taxes over due. China needs to regulate itself but the administering of this alone is likely to kill it.

Have a look at any business website or paper today. Anyone smart enough who can walk away from a black jack table on a hot streak is getting their cash and investments out of Chain now. It's not gonna be a collapse...i'm not foretelling anything like that....but a 6mth blip is all at best.

The poor antipodeans have sold their souls to china and now china isnt buying steel like they were...the bloody aussies dont know what to do with themselves!!

A curse on the Aussie pub in Stockholm by the by...the MOST UN-AUSTRALIAN pub in the whole world!!!
11:39 July 7, 2011 by Mib
Well, I look at the published fixed rates that for example that SEB buy in...and they have reduced over the last few months. They have raised the published fixed rates for customers, but in Sweden, you don't normally pay that published rate as you negotiate with the bank to get a lower rate. They tell you their cost and add their margin which will reduce if you for example you do all you banking with them. I did this last September. The Swedish Finance Minister did criticise banks for increasing their margins as the lending rates between banks have been fallling as confidence has gradually increased.....but that may change depending on what happens with Greece and how its handled by the EU when eventually they default.

I would say banks prefer people to fix their rate as long as possible as its more stable for their customers and less risk to them on their customers defaulting. In fact you can't get a variable rate anymore. You have to fix for at last 3 months. But the banking sector in most countries need more competition as at the moment banks are profiteering more and more.....probably to build up their reserves and pay their undeserving CEOs massive bonuses...even in Sweden.
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