Sweden Interest Rate Cut to 1%


The Executive Board of the Riksbank has decided to cut the repo rate by 0.25 percentage points to 1.0 per cent, to support the Swedish economy so that inflation rises towards the target of 2 per cent.

The weak developments in the euro area are clearly affecting the Swedish economy, which is now slowing down. Household consumption is weak, unemployment is rising and inflationary pressures are low. 

Developments in the euro area are weak and still marked by the debt crisis. Although the uncertainty on the financial markets has declined during the autumn, much work remains to be done to remedy the problems in the euro area countries. There are nevertheless signs of improvement in other parts of the world, for instance, the United States and China.

The weak developments in the euro area are having a clear effect on the Swedish economy. International trade has been weak for some time now. Swedish households and companies now have a more gloomy outlook and consumption and investment are weak. The situation on the labour market has also deteriorated and the number of redundancy notices has risen in recent months. In addition, wage increases are expected to be lower in the coming period. The weak economic development will contribute to low inflationary pressures.
 
Towards the end of 2013, however, inflation is expected to rise as a result of stronger economic activity in Sweden and a rise in employment. Other contributing factors are better prospects for the global economy, the gradual effects of the measures taken in the euro area, and a low policy rate in Sweden.
 
The repo rate is expected to remain around this low level for the coming year. This repo-rate path will contribute to CPIF inflation being close to 2 per cent from 2014 onwards and to resource utilisation normalising in the coming period. The risks entailed in households' high level of indebtedness remain, but given the weaker economic activity and lower inflation, the Executive Board of the Riksbank assesses that it is appropriate to cut the repo rate.

Riksbank | Nuno Fontes | nuno@tradingeconomics.com
12/18/2012 8:37:02 AM