– Raises Repo Rate Outlook

FRANKFURT (MNI) – Sweden’s Riksbank increased its repo rate by 25
basis points to 1.5% as expected on Tuesday and adjusted its forecast
for the repo rate upwards.

“A gradual rise in the repo rate reduces the risk of imbalances
building up in the Swedish economy and may also contribute to a slower
growth in household borrowing,” the Swedish central bank said in a press
release.

However, the decision to tighten monetary policy was not taken
unanimously. Deputy Governors Karolina Ekholm and Lars Svensson were
opposed to the hikes in both the repo rate and the repo path, arguing
that the rate should remain at 1.25% and gradually rise to 3.25% by
2013.

While the average repo rate is expected to remain at 1.4% in this
quarter, the Executive Board forecast an average rate of 1.7% in 2Q, up
from 1.6% forecast in December.

“Inflationary pressures are low, as a result of the strong Swedish
krona and low domestic cost pressure,” the Riksbank said. “They are
expected to rise, however, as wages increase at a faster rate and the
spare capacity in the economy declines.”

“To stabilise inflation close to the target of 2% and to avoid
resource utilisation being too high, there is a need to gradually
increase the repo rate,” it said.

For 2011 as a whole, the board projected an average repo rate of
1.8%, up from 1.7% forecast in December. In 2012, the repo rate is
expected at around 2.8% (2.6%) and reach 3.4% (3.3%) in 2013. By the
first quarter of 2014, the board sees an average rate of 3.6%.

Noting the rise in energy and commodity prices, the Riksbank
revised up its projections for inflation. For this year, consumer prices
are expected to increase 2.5% on average, up from +2.2% forecast in
December. For 2012, inflation is forecast to average +2.1% (+2.0%) and
reach as high as +2.6% (unrevised) by 2013.

The board also hiked up its economic growth forecasts, saying that
“the prospects for continued high growth in Sweden are good.” GDP growth
is expected to slow to +4.4% (unrevised) this year and is projected at
+2.4% (+2.3%) in 2012, and at +2.5% (+2.4%) for 2013.

“As always, the forecasts for the economy and monetary policy are
based on the information currently available and new information further
ahead may lead to changes in these forecasts,” the central bank said.

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

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