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Sweden’s repo rate to stay at zero for three years, says new central bank forecast

Sweden's central bank said on Tuesday that the country's interest rate is forecast to remain at zero for another three years.

Sweden's repo rate to stay at zero for three years, says new central bank forecast
The announcement is intended to aid Sweden in its post-coronavirus economic recovery. Photo: Pontus Lundahl/TT

The key interest rate, the repo rate, will remain unchanged at zero in order to help keep interest rates to both households and businesses low and to support Sweden's economic recovery.

While the central bank, the Riksbank, said it expected the rate to remain at zero for three years, it also noted that it could be cut if necessary.

“The Swedish economy seems to have left the acute crisis situation of the spring and started to recover slightly faster than expected. But it is still a long way back [to the pre-crisis situation], and the situation on the labour market is worrying, with high unemployment as a result of the sharp decline in economic activity in the spring,” said a statement from the central bank on Tuesday.

The bank took the landmark decision to slash the rate below zero in February 2015, hoping that the strategy would boost inflation to raise the price of everyday goods and services which had been stagnant in recent years, and therefore improve the Nordic nation's economic prospects. Almost five years later, it was raised from -0.25 to zero in December 2019, following almost two years of inflation being close to its target of two percent.

In its statement on Tuesday, the bank said inflation had been higher than expected in recent months, but was still forecast to be low overall for 2020. Sweden was already heading towards an economic slowdown even before the coronavirus pandemic, and the crisis has affected the global economy with an impact on Sweden.

“In light of the severity of the crisis and the fact that demand will not be back at more normal levels any time soon, it is expected to take time before inflation is more permanently back close to the Riksbank's target of 2 per cent,” the statement said.

The new forecasts also included a predicted fall in GDP of 3.6 percent this year, which is less dramatic than the predicted drop of 4.5 percent in the previous forecast.

And growth in 2021 was expected to reach 3.7 percent, up slightly from the previous forecast of 3.6 percent.

You can read the full report from the Riksbank here.

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ENERGY

EXPLAINED: When should I turn on my heating in Sweden this year?

Energy costs in Sweden are set to reach sky-high levels this winter, which will leave many people wondering when they should start heating their homes. Here's what you need to bear in mind.

EXPLAINED: When should I turn on my heating in Sweden this year?

What’s happening?

As a result of supply stoppages for cheap Russian gas affecting energy prices on the European market – particularly in Germany – energy prices in Sweden have been at record levels for months, especially in the two energy price zones in the south of the country.

With winter looming and no sign of things getting cheaper anytime soon, private individuals are starting to cut down on energy usage as much as they can to slash their bills this season.

Does it make a difference what type of accommodation I live in?

The right time to start heating your home depends on several factors including your own personal preference, the weather, whether you live in rented accommodation or own your own property, and on the age and features of the property you live in.

How does the heating system work in Swedish homes?

More than half of all houses and commercial properties in Sweden use district heating or fjärrvärme, with this number rising to around 90 percent for apartment buildings.

This system distributes hot water from heating plants to houses and apartments through underground water pipes, meaning that heating sources are centralised, rather than individual houses or apartments having their own heating source.

In smaller towns and in houses, district heating is less common, and it’s these households who can benefit the most from waiting longer to turn on their heating.

Do I control my heating?

It depends. If you live in a rented apartment or a bostadsrättsforening (co-operative housing association) with district heating, your landlord or the board of your housing foundation will usually decide for you when to turn your heating on.

Unlike other countries, Sweden has no official legal heating season, with heating in bostadsrättsföreningar usually switched on automatically following periods of cold weather, no matter which date they occur on.

This will usually be designed to provide an indoor temperature of around 21 degrees – you can turn your radiators down if you feel this is too warm, but you won’t usually be able to turn them up if you want the temperature to be warmer.

The Public Health Agency recommends temperatures of between 20 and 24 degrees indoors, with temperatures lower than 18 degrees in apartments posing a health risk.

Temperatures lower than 14 are not recommended as they can cause condensation and mould growth on walls and furnishings, which, again, are a health risk, and can cause permanent damage to properties.

Can I save money by waiting to turn my heating on?

Again, it depends. If you’re renting and you pay varmhyra – rent with heating included – then you won’t save money directly, but heating your home wisely could make it less likely for your landlord to raise your rent to cover increased heating costs.

If you pay kallhyra – rent without heating included, then waiting to turn on the heating will save money on your electricity bill.

Similarly, in some housing associations, electricity and heating costs are included in your monthly fee, meaning you pay your share of the heating costs for the entire building ever month. In this case, your energy costs are more affected by how much energy everyone else in your housing association uses than your individual usage.

On the other hand, this doesn’t mean you shouldn’t care about how warm your heating is – if you have your heating on full-blast for the whole winter, your costs will increase as well as the costs of all of your neighbours, and if the entire association’s energy costs increase substantially, the board may decide to raise the monthly fee or avgift for everyone in the building to cover this.

If you pay an individual energy bill based on your own household’s usage, and not on an average of the whole building, it could pay to wait before you switch on your heating.

How else can I save money on heating costs?

Turning your heating down a couple of degrees can make a big difference to your heating costs, but you can also save money on heating and make your property feel warmer by making it more energy effective.

There are a few easy ways to do this, according to the Swedish Energy Agency.

Firstly, make sure your house is well insulated, not just your doors and windows, but also in the loft: a large amount of a building’s heat escapes through the roof. This also applies to the boundaries between well-insulated and poorly-insulated areas.

If you have a cellar or conservatory, for example, which is not heated and not insulated, make sure the door between this room and the rest of the house is well-insulated with no gaps around the doorframe where heat can escape into the colder room. 

In a similar vein, locate any drafts and do what you can to block them, either with draft excluders or by replacing worn-out draft excluder strips on old doors and windows.

You can also benefit from thinking about how you furnish your home – furniture placed in front of radiators mean it is harder for warm air to circulate, and you can keep your house warmer at night by closing your curtains or blinds to keep eat from escaping through your windows.

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