Swedish central bank, the Riksbank raises interest rates again


Tuesday, 05 July 2011
The Swedish central bank or the Riksbank raises as expected the repo rate by 0.25 percentage points to two percent. Riksbank governor, Stefan Ingves is working in line of the banks forecast that will see the rates at 4 percent in the forecast period.

According to analysts, survey by various Swedish media, 14 analysts determined that the policy rate would be raised by 0.25 percentage points, to make the rate stand at 2.00 percent. So, therefore, the raise is along the lines of expectation of analysts.

Swedish Economy has entered into a calmer phase, according to the Riksbank's press release which it also determined that the economy continues to grow at a healthy pace. Domestic demand, exports and an improved labour market are all contributing nicely to the development.

SEB's chief economist, Robert Bergqvist told the Swedish business network, Direkt that the there is evidence that the Rikbanken is confident in its economic assessment. The interest rate path which was set remains unchanged despite view that there could have been some adjustments.

In an uncertain environment, many people hoped that the domestic market would be made to be strong. But observers say that there is too much debt in the domestic market that must be vacuumed out.
 "There is, I think, the picture of a bit more uncertainty than before, but the Riksbank does not seem to be so worried about what happens in the Swedish economy. It notes that there is stable development and that it looks pretty good, "said Robert Bergqvist.


He also points out that the interest rate is still only halfway up the level that the Riksbank determined as normal – that is 4 percent.

The rise did not surprise the market as it was already a known secret that the rates will rise. But those to be on the watch out are home owners. Could this raise their interest on mortgage payments? Yes. And will this increase the interest rates on domestic borrowing thereby making the cost of borrowing high? Yes. Could this affect the house prices – because with the cost of borrowing going up, demand for house might go down thereby drawing house prices down? Yes, there is that possibility.

One of the main concerns of the Swedish monetary authorities is to try to do two things: cut down domestic or household borrowing thereby trimming its debts and also to see how this could bring does the house prices which various organisations both at home and internationally have said that they are over valued unecessarily.

To arrive at the news rate hike, the Board had disagreed in its interest rate decision on Tuesday.
Deputy Governor Karolina Ekholm and Deputy Governor Lars EO Svensson entered a reservation against the decision to raise interest rates and the repo rate in the Monetary Policy Update.

They advocated that the repo rate should hang around 1.75 percent instead of the current 2 percent and that the repo rate should gradually rises to 3.8 percent at the end of the forecast period instead of 4 percent.

Their reasons are based on their view of report's forecasts that the Swedish foreign interest rates are getting too high.
Past interest rates hikes
Period Repo a rates Change in percentage
19/04/2011 1.75 0.25
15/02/2011 1.5 0.25
22/12/2010 1.25 0.25
27/10/2010 1 0.25
08/09/2010 0.75 0.25
07/07/2010 0.5 0.25
08/07/2009 0.25 -0.25
22/04/2009 0.5 -0.5
18/02/2009 1 -1
by Team

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