Expectations of a third Swedish repo rates hikes waited in the autumn


Monday, 18 July 2011
Sweden is determined to cleans it huge household debts and bring things such as house prices which is claimed to be over valued down to it natural level. But the Swedish monetary authorities are to do this in a very clever way such that people might complain but few will loose. This will be done through maintaining the interest rate trajectory designed earlier. As such a third interest rate hike is expected the autumn.

The First Deputy Governor of the Swedish central bank, (Riksbanken) Svante ´┐Żberg believed that the risk to inflation remains on the upside and that he still believed that the repo rate would be increased at the third meetings this fall.

In the minutes from the monetary policy meeting on 4 July, Svante Oberg said among other things that rising world prices of most commodities, raises inflation risks more than the Bank expects, and the rising pressures on the labour market may also lead to higher wage growth and hence higher inflation.


He further said that the current Swedish interest rate is still "very low", in both nominal and real terms, and that the interest rate today would have been between 3.0 and 3.5 percent, according to a traditional Taylor rule.

Svante Oberg also believed that the repo rate would be increased at the third meetings this fall, "particularly if the debt problems in the eurozone appear to be managed without significant adverse impact on the financial markets."

He felt that one advantage to raising interest rates a little faster than suggested by the proposed interest rate path is that the Riksbank would be able to shorten the long period of high CPI inflation, which would reduce the risk that the high CPI inflation is driving up inflation expectations in the longer term.

But the uncertainty about putting interest rates further ahead is great, so Oberg did not reserve its position on the interest rate path presented in the draft Monetary Policy Report. The important thing for him was that the repo rate continues to rise up against a more normal level, according to the reports on the minutes.

Deputy Governor, Barbro Wickman-Parak noted that she had speculate or a lower interest rate path before the meeting. But she saw no reason to lower the interest rate path at the moment.

She feels that with the possibility of wage pressure because of lack of some key skills and the high unemployment still hanging in th economy, it make sense to increase the resource further and reduce unemployment slightly compared to the baseline. Long term inflationary pressure is that on issue which they are watching very close as well as development in the world – euro zone and the USA.
By Team

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