–Adds Forecasts, Comments On Swedish, Global Economies And On Rate Path

PARIS (MNI) – Sweden’s central bank, the Riksbank, on Wednesday
left its repo rate unchanged at 1.5%, pausing after having cut rates by
25 basis points at its previous two meetings.

Despite some “positive signs” in activity following a sharp
slowdown of Sweden’s economic growth last year, “inflation is low and
expected to remain so over the coming year,” the Riksbank said in its
monetary policy statement.

“Monetary policy needs to remain expansionary to support the
recovery,” it said. “The Executive Board of the Riksbank has therefore
decided to hold the repo rate unchanged at 1.50%.”

The bank also left its projected repo rate path unchanged. After
its last monetary policy meeting in February, it had said the rate would
stay at 1.5% “until sometime in 2013.” Today it refined that assessment
slightly, saying the rate would stay at its current “low level for just
over a year.”

Later, when inflationary pressures increase, “the repo rate will
need to be gradually raised. This repo-rate path will contribute to
stabilising inflation around 2% and resource utilisation in the
economy around a normal level,” the central bank said.

The decision to keep rates unchanged was not unanimous. The two
customary dissidents on the Riksbank’s board, deputy governors Karolina
Ekholm and Lars Svensson, both advocated for a 50 basis point rate cut
to 1.0% and argued that the repo rate path should be lowered.

The Riksbank noted that despite improvement in the U.S. economy and
a “relatively good pace” of growth globally, “the situation on the
financial markets in Europe is fragile, and much work remains to be done
before sustainable solutions to the problems in the debt-ridden euro
countries have been implemented.” It added that, “economic growth in the
euro area is therefore expected to be weak during the coming period.”

After contracting in the fourth quarter of last year, largely due
to “very weak” exports, there are now signs that both Swedish exports
and domestic demand are increasing again, the bank said. It noted an
improvement in household and business confidence, too.

“However, growth in the Swedish economy will be relatively slow
this year,” before gaining speed in 2013, the Riksbank projected. And
the soft economy will lead to a slight rise in unemployment.

The bank downgraded its domestic growth forecasts for both this
year and next. It put 2012 GDP growth at 0.4%, down from 0.7% in its
February
forecast. For 2013, the Riksbank projected a growth rate of 1.9%, down
from the previous projection of 2.1%.

It also cut its consumer price inflation forecast for this year to
1.2%, from the previous figure of 1.4%. It left the 2013 CPI projection
unchanged at 1.9%.

Recent economic sentiment indicators have shown a marked
improvement since the Riksbank cited weakening economic activity in
Sweden as justification for its 25 basis point cut in February. The
KI/NIER Economic Tendency survey, for example, rose sharply from 93.5 to
101.8 between January and March, pointing to above-trend growth.

Weak export data, cited as a major concern of the central bank’s
executive board at its last meeting, have also shown signs of
stabilizing, and retail sales have registered a surprise increase.

At 1.5% in March, inflation remained in line with the bank’s
projections and below its target rate of 2.0%.

–Paris newsroom, +331-42-71-55-40; paris@marketnews.com

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