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INTEREST RATE

Libor scandal prompts calls for probe in Sweden

Calls are mounting in Sweden for a review of the country's interbank lending system following revelations about alleged manipulation of the London interbank offered rate (Libor).

Following news that Barclay’s bank manipulated the Libor rate, used by banks in London to set interest rates charged when lending to other banks, the Swedish Property Federation (Fastighetsägarna) has demanded an investigation into how a similar system works in Sweden.

The group claims that banks in Sweden might also have reason to charge customers higher rates than are warranted, Sveriges Television (SVT) reported.

One reason why the Property Federation wants the probe is that Sweden has one of the largest gaps in the western world between the benchmark interest rate set by the central bank and rates charged on inter-bank loans – known in Sweden as the Stockholm interbank offered rate (Stibor).

“If it’s happened [in England], it can happen here and we must bring be able to clarify that it hasn’t happened. It’s important to put the question on the table, in any case,” the federations chief economist, Tomas Ernhagen, told SVT.

But the Riksbank, which has followed Sweden’s interbank rates for a relatively long period of time, doesn’t believe there are any irregularities with the Stibor rate, Riksbank head Stefan Ingves said in a recent press conference.

According to Annika Falkengren, head of the SEB bank, Sweden’s relatively high interbank lending rate is a consequence of how the central bank has reacted to the issue.

“Sweden is one of the few countries that hadn’t had injections of liquidity,” she told the TT news agency, comparing Sweden to other European countries which have received additional liquidity from the European Central Bank (ECB).

She added, however, that Sweden has a lower level of liquidity in its financial system compared to other countries.

“Sweden hasn’t been doping,” she said, employing a common metaphor referring to athletes who inject performance enhancing drugs.

On Monday, the 3-month Stibor rate was at 2.08 percent, compared to 2.56 percent a year ago, according to the Riksbank.

In July 2008, the Stibor rate was at 5 percent.

The rate is calculated as an average of the rates charged on loans banks make to one another and is calculated daily.

According to the Riksbank, one reason that the differences between the interbank rate and benchmark interest rates are larger in Sweden is that Swedish banks have a great deal of financing in foreign currencies.

TT/The Local/dl

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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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