Sweden’s Riksbank raises interest rates

The Swedish central bank, Riksbanken, has decided to raise the repo rate by 0.25 percentage points to 2.0 per cent, the bank announced on Tuesday.

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

“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.

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Ingves: Interest rates stable all year

The head of Sweden's central bank has said he expects Sweden's interest rates to remain at their current low level in 2012, but warned banks that they must be more open about how much they earn from lending to customers.

Ingves: Interest rates stable all year

Governor Stefan Ingves defended the Riksbank’s policies, despite concerns that banks are not passing on lower interest rates to borrowers:

“Our interest rate decisions have an impact, even if they do not have an immediate effect. The monetary policy of Riksbanken is still effective in terms of capital management,” Ingves told the Dagens Nyheter daily.

But, he said, banks should have “clearer policies as to how they declare their margins.”.

Concerns were raised after last December’s interest rate cut, as banks were slow to follow suit and cut mortgage rates.

On the broader economic outlook, Ingves said Swedish banks’ reliance on international loans made it harder to maintain stability. However, he said Swedes had reason to be optimistic about the year ahead, despite great financial turmoil in the world.

“Sweden has a steady position with low debts and a balanced government budget. Expectations both for inflation and long-term inflation remain under control. Meanwhile, financial growth and productivity have developed well,” he told DN.

While Sweden’s export figures represent half of its gross domestic product it also has strong capital flows, which strengthens the positive outlook, according to Ingves.

The purchasing index in Sweden, which reflects industrial economic activity, was on the up in December coming in at 48.9 percent, compared to 47.6 percent the previous month.