The Swedish Riksbank may increase rates despite looming crisis and debt worries


Sunday, 04 September 2011
Most analysts believe that the Swedish central bank or the Riksbank, would stop and pause on its trajectory to persistent raising interest rates as the stock market collapse late in the summer led to various sown grades in growth estimates.  But one of the three interest-rate actors believes that the increases in the rates would still continue in the week.

Traditionally, the interest rate path, the forecast for the repo rate development which is updated at each meeting of the rates agency authorities has a pretty clear picture of the next interest rate decision.

But this summer's messy debt crisis and stock market collapse has ignited the view within almost all forecasters to nervously write down their projections. And a wide range of surveys, polls and the index has suddenly gone straight down. The conclusion in most places was now that the recession is approaching and that the Riksbank must stop raising, or perhaps even cut rates.


But uncertainty about where rates will go has grown even higher than ever. And when the Governor of the central bank, Ingves,  recently assessed the situation, he noted that nothing had actually happened in the world economy that was not previously been known, except for a central bank perspective. It was interpreted immediately as an indication that interest rate increases will continue.

“There is great uncertainty right now, but a greater probability of an increase is higher than that seen in pricing,” says Johan Jav�us, chief analyst at SEB.

SEB presented also on Thursday a survey with some 30 major investors in the Swedish fixed income market. More than two thirds believe that the Riksbank is waiting with interest rate hikes on the uncertain situation that there might be debt crises and stock market may collapse.

But almost a third still believe that the repo rate will go up and thus the variable mortgage rates, will continue to push upwards as the Riksbank is presenting its interest rate decision on Wednesday.

One reason is that the Executive Board usually care more about hard economic data and much less on stock prices, barometers, assessments and surveys. And it tends to be growth that is at the centre.

The Riksbank is usually much more focused on what we actually know about the economy, in terms of outcome of the data. And does not change course influenced by barometers according to Jav�us.
By Team

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