Sweden keeps rate at 0.25%

The Swedish central bank will keep the repo rate at 0.25 per cent in order to “attain the inflation target of 2 per cent and to support the economic recovery”. The repo rate is expected to remain at this level until Q4, when it is forecast to rise to 0.4 per cent. Also unchanged are the deposit rate at -0.25 per cent and the lending rate at 0.75 per cent.

Deputy Governor Lars Svensson entered a reservation against the decision and advocated cutting the repo rate to 0 per cent and a repo rate path 0.25 per cent below the path of the main scenario until Q3 2010. He said that such a repo rate path would entail a better-balanced monetary policy, with lower unemployment, higher resource utilisation and a CPIF inflation rate closer to the target, without causing any problems for the functioning of the financial markets or for financial stability.

Large fluctuations in inflation are forecast by the Riksbank: changes in the repo rate affect mortgage rates, which are a component of CPI. Inflation using fixed mortgage rates – CPIF – are likely to be more stable. Overall, current and future inflationary pressures are seen as low, and lower than forecast in October. The Bank said recovery was underway, but that unemployment would rise during 2010.

Riksbank governor Stefan Ingves also said today he is prepared to offer new loans to Sweden’s banks if needed in the future: “There are still risks for a relapse and if that happens we will have to reverse and start again,” he said.

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