Thursday, October 24, 2013

Sweden holds rate, confirms steady rate until end-2014

    Sweden's central bank held its benchmark repo rate steady at 1.0 percent, as expected, and confirmed that it expects to maintain this rate until the end of next year when it will be raised.
    The Riksbank, which has held rates steady this year, said the "outlook for the Swedish economy is brightening" and the labour market had shown some improvement that is expected to become clearer next year.
    "The repo rate needs to remain at this low level until economic activity is stronger and inflation rises. As before, the repo rate is not expected to be raised until the end of 2014," the bank said, repeating its guidance from September.
    Although the Riksbank said economic developments in Sweden and abroad had been largely in line with its forecast, the bank trimmed its forecast for growth this year and next, and also the forecast for the repo rate.
    The 2013 forecast for Sweden's Gross Domestic Product was cut to 0.7 percent from 1.2 percent forecast in September and to 2.6 percent for 2014 from 2.7 percent. The 2015 forecast was cut to 3.5 percent from 3.6 percent.
    The 2013 and 2014 average forecast for the repo rate was unchanged at 1.0 percent, but the forecast for quarterly averages was trimmed to 1.15 percent for the fourth quarter of 2014 from 1.25 percent and the 2015 fourth quarter forecast was trimmed to 2.24 percent from 2.25 percent.
    The central bank said there were signs on an improvement in the euro area and recovery in the United States was continuing despite the challenges surrounding the political disagreement in the U.S. over fiscal policy along with uncertainty surrounding the Federal Reserve's tapering of asset purchases.
    "Despite a slightly more subdued development in several emerging markets, the world as a whole is expected to grow at a relatively good rate during the coming years," the Riksbank said, adding that recovery abroad would contributed to brighter prospects for Sweden's economy.
    The bank said sentiment among households and companies had risen and the labour market had shown some improvement while inflation is low and expected to remain around 1 percent.
   The bank forecast average zero percent this year, down from its previous forecast of 0.1 percent, and 1.2 percent in 2014, down from its September forecast of 1.3 percent. It is first expected to rise toward the bank's 2.0 percent target in 2015. Sweden's inflation rate was 0.1 percent for the third month in a row in September.
    Noting the Swedish government's recent move to make Finansinspektionen responsible for macroprudential policy, the central bank said the risks linked to household debt "can be assumed to decline" once measures have been taken and this would impact monetary policy though it was difficult to determine as yet how much and how quickly.
    Sweden's GDP contracted by 0.2 percent in the second quarter from the first.


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