Swedish Repo Rate Raised 25 Basis Points to 1.75% in Expected Move

April 20, 2011

Before today’s action, the Executive Board implemented four 25-bp rate hikes in the second half of 2010 and a fifth increase from 1.25% to 1.5% in mid-February.  The Riksbank is among very few central banks that publishes a non-binding expected path for its benchmark interest rate, and this remains unchanged from what officials were expecting when they met in February.  From the new repo rate level of 1.75%, such is projected to rise to 2.5% by the first quarter of next year, 3.2% by 1Q13, and 3.6% by 1Q14. A gradual normalization of rates is deemed necessary to avoid economic overheating and to ensure that underlying CPI inflation doesn’t climb above the 2% target.  GDP growth must also slow, so officials are projecting 4.6% this year, down from 5.5% growth in 2010, and then economic expansion of 2.3% in 2012 and 2.5% in 2013.  A statement from officials expect continuing strong growth and reveals that two of the six Board members — Svensson and Ekholm — again dissented from the decision.  They did not want today’s rate hike and prefer a flatter near-term rate path.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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