Swedish Riksbank Signals Likely Unchanged Repo Rate until 1Q14

February 13, 2013

The six-person Executive Board of Sweden’s central bank left its 1.0% repo rate unchanged and released a statement with the following future rate guidance:

The low interest rate supports economic activity so that inflation will rise towards the target of 2 per cent. The repo rate is expected to remain at this low level for around a year. This repo-rate path will contribute to core inflation being close to 2 per cent from the middle of 2014 and to resource utilisation normalizing during the forecast period.

Since 3Q08, the repo rate has ranged from 0.25% to 4.75%.  It was cut from the range high to the range floor in six steps between October 2008 and July 2009.  After a year holding at 0.25%, the benchmark was raised by 25 basis points in seven steps to 2.0% by July 2011, then cut by a similar amount in December 2011 and February, September and December of last year.

Today’s statement identifies several factors that will lift economic growth gradually.  These include robust emerging markets, better business and consumer confidence, less strained financial markets, and the accommodative monetary policy.  Nonetheless, there are downside growth risks, and the baseline view calls for GDP to rise just 1.2% this year after an increase of 0.9% in 2012.  Unemployment is likely to climb this year, and officials slightly cut projected 2014 total and core inflation by 0.2 percentage points to 2.1% and 1.8%.   The repo rate is projected to rise 25 basis points per quarter to 2.0% during the year to 1Q15 and by a further 75 bps over the subsequent year to 1Q16.  Officials underscored that these indications are projected levels, not promises.

Ms. Ekholm and Mr. Svensson, two of the Board’s six members, again dissented from the four-person majority.  Ekholm wanted a 25-bp cut now, and Svensson recommended a 50-bp reduction.  In contrast to the majority’s favored 2.7% rate level in 1Q16, they respectively favored repo rate levels of a tad less than 2.0% and 1.5% at the end of the forecast period.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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