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Sweden tears up plans to raise interest rates after Brexit

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Sweden tears up plans to raise interest rates after Brexit
File photo of old Swedish bank notes being torn up. Photo: Marcus Ericsson/TT
09:53 CEST+02:00
Sweden's central bank, the Riksbank, has kept its record-low interest rate unchanged, and hinted on Wednesday that it could be dropped further.

The Riksbank kept Sweden's key interest rate, the repo, at -0.50 percent, but suggested it could be dropped to -0.53 percent in the final quarter of the year.

It predicted that, following what it described as the uncertainty sparked by Brexit, the rate would not go up until the third quarter of next year, adjusting its previous plans of raising it earlier in 2017.

"Economic activity in Sweden is continuing to strengthen, but there is considerable uncertainty over economic developments abroad and this has increased as a consequence of the result of the British referendum on the EU," said the bank in a press release issued on Wednesday morning.

Sweden first slashed the repo rate to negative levels in February 2015, the first time in the country's history. It is now not expected to climb back to above zero until the third quarter of 2018.

The Riksbank also mentioned continuing low inflation as a factor behind its decision to keep the repo rate unchanged.

"A highly expansionary monetary policy is needed to provide continued support to the Swedish economy and rising inflation. (...) Given the increased uncertainty, the executive board now assesses that it will take longer before the repo rate begins to be raised," it said.

The UK's prospective withdrawal from the European Union has been causing jitters in the world's financial markets since its June 23rd referendum. But the Riksbank said it did not believe that it would have a strong negative effect on the Swedish economy, suggesting that its Wednesday move may be merely a precaution.

"At present, it is difficult to assess the political and economic consequences of the outcome of the UK referendum, but the Riksbank assumes so far that the effects on the Swedish economy will be relatively limited. There is a risk of larger negative effects, but these are at present difficult to quantify in a forecast," it said.

"The Riksbank is following developments closely and its forecasts will be adjusted as more information becomes available."

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