Swedish Riksbank Repo Rate Lifted After Majority Vote

September 2, 2010

The first tightening on July 1 doubled the repo rate to 0.5%, and today’s action raises such by an additional 25 basis points.  The Riksbank is one of few central banks to publish a predicted future path of its own policy rate.  The trajectory — 0.9% in the fourth quarter, 2.1% in 3Q11, 3.1% in 3Q12 and 3.8% in the third quarter of 2013 — is the same as officials indicated after the first rate hike.

Today’s action drew dissents from two of the Policy Boards six members.  One objected to a rate hike today, and the other agreed with the first that the path of future interest rates should be flatter in slope than indicated by the majority. 

Swedish monetary officials believe that a gradual increase in the repo rate will be necessary.  They assume back-to-back economic growth of 4.1% in 2010 and 3.5% in 2011, placing Sweden at the high end of advanced economies particularly in Europe.  Softer core CPI inflation of 1.3% is expected next year than the 2.0% pace assumed for 2010, but pressure will build later. 

Sweden’s repo rate remains far below its pre-August 2008 level of 4.75%.  275 bps of rate cuts were subsequently made in 2008, followed by 150 bps in the first half of 2009 and one final 25-bp reduction to 0.25% in July of 2009.  Amid externally imposed growth risks related to a possible double-dip U.S. recession and the uncertain impact of fiscal austerity in Europe, Riksbank officials are proceeding slowly at first.

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



Comments are closed.