–Leaves Expected Repo Rate Path Unchanged

FRANKFURT (MNI) – Sweden’s central bank raised its key policy rate
25 basis points to 1.25% on Wednesday, in line with economists’
expectations.

The central bank has now hiked its key interest rate four times
this year as the Swedish economy has staged a spectacular rebound.

At the same time, the central bank left its future rate path
unchanged. The Riksbank said it still expects the key repo rate to
average 1.7% next year, 2.6% in 2012 and 3.3% in 2013.

“There is a need to gradually raise the repo rate towards more
normal levels to stabilize inflation close to the target of 2% and to
avoid resource utilization becoming too high,” the Riksbank explained,
adding that the overall picture of economic prospects remains largely
the same as in October.

The decision was not unanimous, as two of the central bank’s
six-member board advocated a less hawkish stance. Deputy Governors
Karolina Ekholm and Lars Svensson preferred a repo rate of 1.0% and a
repo rate path that gradually rises to 2.7% at the end of the forecast
period, the Riksbank said.

The same governors had already opposed the last rate hike for the
same reasons, arguing that the proposed interest rate path would “imply
a tighter monetary policy than is apparent in the Monetary Policy
Update” and drive up the Swedish krona excessively, reduce inflation and
raise unemployment.

Much as expected, the Riksbank hiked its domestic growth projection
for this year to 5.5% from 4.8% after GDP surprised on the upside in the
third quarter, rising 2.1% q/q and 6.9% y/y, marking the highest annual
increase on record.

The central bank sees GDP growing by 4.4% next year (vs +3.8%
forecast in September) and by 2.3% in 2012 (+2.6%). For 2013, the
Riksbank expects growth of 2.4%.

“The Swedish economy is growing at a record rate and benefiting
from the increasing world trade. The upturn is broadly based, and now
investment has also accelerated,” the central bank said. Developments
abroad, however, remain, fraught with uncertainty, it added.

The central bank revised its inflation rate forecast for next year
to 2.2% from 1.7%, for 2012 to 2.0% from 2.2% and left its forecast
unchanged for 2013 at 2.6%

“While higher electricity prices and commodity prices temporarily
push up inflation, underlying inflationary pressures in the Swedish
economy will be low as a result of low labour costs. During the forecast
period inflationary pressures are expected to rise as economic activity
improves,” the Riksbank said.

–Frankfurt bureau: +49 69 720142, jtreeck@marketnews.com

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