–Adds Information On GDP, Inflation Forecasts

FRANKFURT (MNI) – Sweden’s Riksbank increased its repo rate by 25
basis points to 1.75% on Wednesday, as expected, although kept its
three-year forecast for the repo rate path unchanged.

“The Executive Board of the Riksbank has decided to raise the repo
rate by 0.25 percentage points to 1.75 per cent to stabilise inflation
close to the target of 2 per cent and to avoid resource utilisation
becoming too high,” the Swedish central bank said in a press release.

As was the case in February, when the central bank last raised
rates, Deputy Governors Karolina Ekholm and Lars Svensson both entered
reservations over the bank’s most recent decision to tighten.

“They preferred a repo rate equal to 1.5 per cent and a repo rate
path that first rises slower and then faster than that of the Update, to
about 3.9 per cent by the end of the forecast period,” the press release
stated. “Such a repo rate path implies CPIF inflation closer to 2 per
cent and a faster reduction of unemployment towards a longer-run
sustainable rate.”

The bank announced that its forecast for the repo rate path was
kept unchanged from the previous monetary policy decision in February:
For 2011, the repo rate is still expected to average 1.8%, rising to
2.8% in 2012 and reaching an average rate of 3.4% one year later.

While underlying inflation remains low, rising commodity prices,
the acceleration of wage increases and falling spare capacity should all
contribute to stronger price increases in Sweden over the forecast
horizon, the central bank said.

As a result, the Riksbank revised up its inflation forecast and now
sees inflation averaging 3.2% this year, up from 2.5% projected in
February. For 2012, the bank sees prices rising 2.8%, up from 2.1%
previously forecast and easing to +2.7% in 2013, up from the initial
forecast of +2.6%.

The Riksbank also revised up its economic growth forecasts and now
sees the Swedish economy growing 4.6% this year, up 0.2 percentage point
from February’s assessment. However, the bank cut its forecast for 2012
to +2.3% from the +2.4% forecast in February. For
2013, the bank left its forecast of +2.5% unchanged.

Euro-Sek initially rallied on the news of an unchanged repo rate
path forecast, rising to Sek 8.9359 from Sek 8.9114. But it then shed
those gains, slipping all the way to Sek 8.9070.

The repo rate decision will take effect from April 27, while the
minutes will be published on May 3, the central bank said.

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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