Sweden Gets a Seventh 25-Basis Point Central Bank Rate Hike

July 5, 2011

The Executive Board of the Swedish Riksbank, which meets six times annually, agreed on a seventh straight increase, and third so far in 2011, of its repo rate to 2.0%.  The initial tightening was decided a year ago on June 30, 2010.  The Board’s statement posted today on its web site asserts that Sweden’s economy is expanding at “a good rate.”  This not a new position: “The overall picture of economic prospects remains largely the same as in April” when the Board last met and implemented a sixth consecutive rate advance.  Real GDP rose 5.7% last year and is projected to grow another 4.4% in 2011.  Core inflation is presently below the 2% target and will remain so in 2012, but the trend is upward and will take inflation a tad above target in 2013.  Accordingly, “there is a need to gradually increase the repo rate to stabilise inflation around the target of 2 per cent and resource utilization around a normal level.” 

Swedish real GDP increased 3.3% annualized in the first quarter and 6.4% between 1Q10 and 1Q11.  Total consumer prices, which embody rising mortgage costs, increased by 3.3% in the year to May. 

The Riksbank takes the unorthodox approach of projecting a path for its key interest rate based on available information that of course changes as the facts deviate from prior assumptions.  Because the economic environment is largest the same as believed in April, the path remains the same and shows the repo rate climbing to 2.4% in the final quarter of 2011, 2.9% by 3Q12, 3.4% in 3Q13 and 3.8% by the third quarter of 2014.

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



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