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ECONOMY

Riksbank lowers interest rate to 1 percent

Citing a euro crisis-tainted economy and domestic thriftiness, Sweden's central bank on Tuesday cut the repo rate by 0.25 percentage points, lowering the country's benchmark interest rate to 1.0 percent in order to stimulate inflation.

Riksbank lowers interest rate to 1 percent

“The weak developments in the euro area are clearly affecting the Swedish economy, which is now slowing down,” the Riksbank said in a statement.

It also noted that Swedes are spending less money, wages are not expected to increase at their usual rate, and unemployment has risen, all combining to create “low inflationary pressure”.

Sweden has a 2-percent inflation target.

“Swedish households and companies now have a more gloomy outlook, and consumption and investment are weak,” the statement read.

The governing board, however, hopes that Tuesday’s interest rate cut will keep Sweden on target inflation-wise all the way to 2014. It does not expect to alter the repo rate further during 2013.

Two of the bank’s six governors, however, wanted an even heftier cut.

Karolina Ekholm wanted the Riksbank to cut the repo rate down to 0.75 percent in early 2013 and communicate its intentions to do so now.

Lars E.O. Svensson wanted a similar cut to be put in place immediately and not wait for the New Year.

There were also outside critics who said the Riksbank should have acted more decisively and more swiftly during 2012.

“There is a lot to support an argument that the interest rate we had negatively affected the economy and has contributed to unemployment,” John Hassler, economics professor at Stockholm University, told TT.

Hassler does not think Tuesday’s cut will have any great effect as most players in the market had already forecast the rate cut and made adjustments accordingly.

The Riksbank also lowered its forecast for Swedish economic growth in 2013 to 1.2 percent, down from the previous forecast of 1.8 percent. The bank expects economic growth to pick up in 2014, however, rising to 2.7 percent.

Unemployment, according to the Riksbank, is expected to rise to 8.1 percent next year, slightly higher than the bank’s earlier forecast of 7.9 percent, before falling to 7.6 percent in 2014.

TT/The Local/at

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ECONOMY

Swedish economy to grind to a halt as interest rates kick in

Sweden faces an economic slump next year that will see economic growth grind to a complete stop, Sweden's official government economics forecaster, has warned.

Swedish economy to grind to a halt as interest rates kick in

Sweden’s National Institute of Economic Research, which is tasked with tracking the business cycle for the Swedish government, warned in its quarterly forecast on Wednesday that greater than expected energy prices, interest rate rises, and stubborn inflation rates, Sweden was facing a significant downturn. 

The institute has shaved 1.6 percentage points off its forecast for growth in 2023, leaving the economy at a standstill, contracting -0.1 percent over the year. 

The institute now expects unemployment of 7.7 percent in 2023, up from a forecast of 7.5 percent given when in its last forecast in June.

“We can see that households are already starting to reign in their consumption,” said Ylva Hedén Westerdahl, the institute’s head of forecasting, saying this was happening “a little earlier than we had thought”. 

“We thought this would have happened when electricity bills went up, and interest rates went up a little more,” she continued. 

The bank expects household consumption to contract in 2023, something that she said was “quite unusual” and had not happened since Sweden’s 1990s economic crisis, apart from in the immediate aftermath of the Covid-19 pandemic. 

This was partly down to a five percent reduction in real salaries in Sweden in 2022, taking into account inflation, which the institute expects to be followed by a further two percent fall in real salaries in 2023. 

If the incoming Moderate-led government goes ahead with plans to reimburse consumers for high power prices, however, this would counterbalance the impact of inflation, leaving Swedish households’ purchasing power unchanged. 

The institute said it expected inflation to average 7.7 percent this year and 4.6 percent in 2023, both higher than it had forecast earlier.

Sweden’s Riksbank central bank this month hike its key interest rate by a full percentage point, after inflation hit 9 percent in August, the biggest single hike since the 1990s. 

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