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RIKSBANK

Sweden leaves key interest rate unchanged

Sweden's central bank, the Riksbank, has left the country's benchmark interest rate, the repo rate, unchanged at 1.50 percent, but warned that the Swedish economic growth remains sluggish.

Sweden leaves key interest rate unchanged

“The Executive Board of the Riksbank has decided to hold the repo rate unchanged at 1.50 per cent to support economic activity and ensure that inflation is in line with the target of 2 per cent,” said the Risksbank in a statement.

The Riksbank aims to keep the rate at this level for a year, until inflationary pressures increase, which will lead to a gradual rise from 1.50 percent.

The announcement comes at a time when Europe’s economy is in a period of unease, and Sweden’s economy is growing weakly, due to depressed Swedish exports and weak GDP growth that is expected to remain sluggish, along with slight rises in unemployment figures.

“The Swedish economy has developed more strongly than expected so far this year. Household consumption and corporate investment increased relatively strongly at the beginning of the year, while unemployment has been lower than expected,” the bank said.

When the unease in Europe abates, the bank expects a strengthened level of economic activity in Sweden, as well as increased inflation and resource utilization.

However, if problems persist in the euro area, the bank hinted that the repo-rate may be lowered.

The Local/og

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ECONOMY

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.” 

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