FRANKFURT (MNI) – Sweden’s Riksbank sees a risk that later than
previously expected rate hikes in the U.S. and Europe could slow its own
tightening cycle, minutes of the Executive Board’s Monetary Policy
meeting released Wednesday revealed.

At the meeting on September 1, the Riksbank had decided to raise
interest rates from 0.50% to 0.75%.

“Weaker international development could lead to weaker development
in Sweden and a lower repo-rate path in the longer term,” First Deputy
Governor Svante Oeberg said.

Oeberg warned of “greater uncertainty with the regard to the
repo-rate path,” suggesting that the Riksbank’s rate decisions
“will in part depend on developments in the Eurozone and the United
States and how these affect the Swedish economy.”

Not only a potentially negative impact on the domestic economy
from weaker growth abroad but also fears of adverse effects from high
interest rate differentials might force a slower hiking cycle in Sweden,
Deputy Governor Lars Svensson warned.

He too observed that “there is great uncertainty about developments
in the Eurozone. In the United States, the situation appears to be both
more uncertain and more gloomy than previously, with a greater risk of a
double dip and perhaps even deflation.”

Given recent economic development and statements made by the
Federal Reserve and the European Central Bank, low policy-rate
expectations must be regarded “as very realistic,” Svensson said.

Higher interest rate differentials in relation to other countries
or even the expectation of these “would trigger substantial capital
flows and lead to a dramatic appreciation of the krona” and thereby an
undue tightening of monetary policy, he warned.

Deputy Governor Karolina Ekholm shared the assessment of looser
monetary policy abroad and at home.

In her view, “the latest developments in the United States and
Europe indicate that interest rates abroad will rise more slowly than
previously expected by the Riksbank and that this may mean that the repo
rate may need to be increased more slowly than the Riksbank previously
believed,” the minutes said.

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