Riksbank Keeps Swedish Interest Rate Unchanged at 1.0%


In its July meeting, the Executive Board of the Riksbank has decided to hold the repo rate unchanged at 1.0 percent. The Board underlined that Swedish economy is on the way to recovery and that inflation is expected to remain low for a while longer.

Excerpt from the statement by the Executive Board of the Riksbank:

Economic developments in Sweden and abroad have been largely in line with the Riksbank’s most recent forecast in April. The repo rate needs to remain low to support the economy and enable inflation to rise to the target of 2 per cent. Gradual increases in the repo rate are expected to begin during the second half of 2014, as assessed earlier.

Economic developments around the world are in different phases. In the United States, GDP is continuing to grow at a modest pace, while developments in the euro area are weak. Several euro area countries need to implement major reforms, which will take many years, although there are signs that developments are moving in the right direction. Moreover, there are good conditions for an increase in growth in the United States. The economic outlook abroad as a whole is expected to improve gradually over the coming years.

The weak demand in the euro area has led to a fall in exports and investment in Sweden. At the same time, households' finances are relatively strong. Low interest rates and rising employment have contributed to good growth in incomes preparing the ground for continued steady growth in consumption. As the global economy improves, demand for Swedish exports is expected to increase and GDP growth to accelerate at the end of the year. During 2014, the labour market and unemployment will fall again. 

Inflation is currently low and core inflation is expected to remain at around 1 per cent this year. When economic activity improves, import prices and labour costs will rise at a faster rate, at the same time as companies are able to raise their prices more. This means that inflation is expected to attain 2 per cent in 2015. 

An even lower repo rate could lead to inflation attaining the target somewhat sooner. However, at the same time, a lower repo rate now, when the situation for households is already relatively favourable, could lead to a further increase in the risks related to high household debt. If households were forced for one reason or another to quickly reduce their debts, there is a risk that unemployment would rise sharply and there would be prolonged difficulties in attaining the inflation target. The monetary policy conducted is therefore considered to be a reasonable balance that stabilises inflation and the real economy in the short run, at the same time as taking into account more long-term risks linked to households' high indebtedness.

Riksbank Keeps Swedish Interest Rate Unchanged at 1.0%


Riksbank | Nuno Fontes | nuno@tradingeconomics.com
7/3/2013 9:17:49 AM