Swedish Riksbank Revises Likely Path for its Repo Rate

February 11, 2010

Sweden’s repo rate was left at 0.25%, but officials released a statement that indicated an earlier likely first rate hike in summer or early autumn, not “autumn” as indicated previously.  At the same time, the statement also observes that a more gradual progression of tightening is probable during 2011 than envisaged before.  The rate level in seen now as reaching 1.1% by 1Q11 instead of 0.8% previously but 2.8% in 1Q12 instead of 3.0%.  Officials note that the exact determination of when to raise rates will be influenced by how the krona behaves and extent of wage inflation.  Projected average CPI inflation this year was doubled to 1.6% and penciled in at 2.9% in 2011 and 3.1% in 2012.  GDP is forecast to expand 2.5% in 2010, 3.4% in 2011, and 3.1% in 2012.  Although the numerical forecasts on growth are hardly changed from before, the tone of the text is clearly more positive: “the assessment now is that the upturn in economy activity rests on more solid ground.” 

One of the policymakers, Svensson, dissented in favor of an easier stance that would have cut the repo rate now to zero and to follow a trajectory that is 25 basis point lower than the majority view the rest of the way. 

The statement indicates that the repo rate is likely to be at 4.0% by 1Q13, still below it last cyclical peak.  The repo rate had been at 4.75% at the end of 3Q08 but was cut by 275 basis points in three moves during 4Q08, reduced once further in the first quarter of 2009 by 100 basis points, once in the second quarter by 50 basis points and one final time at the start of 3Q09 by 25 basis points.  The krona responded positively today to the statement, gaining some ground against the euro.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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