— Adds Repo Rate Path, GDP, CPI Projections

PARIS (MNI) – Sweden’s central bank, the Riksbank, announced
Tuesday that it has decided to reduce its repo rate by 25 basis points
to 1.75% because of a darker economic outlook both home and abroad, and
low inflation.

The central bank also lowered the path for its repo rate. The repo
rate is now projected to average 1.7% next year compared to a previous
forecast of 2.2%. For 2013, the rate is expected to average 2.1%, with
projections pointing to a rate of 2.4% for the last three months of that
year.

The decision was split, with deputy governors Karolina Ekholm and
Lars E.O. Svensson dissenting. They both argued for a larger rate cut of
50 basis points to 1.5%. They also wanted the bank to project a lower
repo rate path than was decided.

“The economic outlook abroad has deteriorated and the Swedish
economy is slowing down. At the same time, inflationary pressures are
low,” the Riksbank said in a written statement announcing its decision.
“The Executive Board of the Riksbank has therefore decided to cut the
repo rate by 0.25 percentage points to 1.75 per cent and to lower the
repo-rate path.”

In its previous statement issued in October, the Riksbank had said
that it was necessary to keep the rate unchanged and wait until sometime
in 2012 to increase it. However, with the inflation path revised
downwards and now projected to average a below-target 1.9% next year,
the situation has clearly changed.

“Later on, when inflationary pressures increase, the repo rate will
need to be raised gradually,” the central bank said today. “Such a
repo-rate path will gradually stabilise inflation around 2 per cent and
resource utilisation in the economy around a normal level.”

GDP forecasts were also revised down, with growth expected to
average 1.5% (+1.7%) next year after 4.2% (+4.5%) in 2011. For 2013,
economic growth is projected at 2.4%, unchanged from the monetary policy
update published in September.

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

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