Sweden cuts repo rate, cites uncertainty and growth concerns

Sweden’s central bank has cut its repo rate by 25bp to 1.25% on concerns about growth in the Swedish economy and a lowering of expectations of inflation.

The executive board of the Riksbank said that its new rate would likely remain in place until the middle of next year, to support economic activity and encourage inflation to rise towards its 2% target.

Exports were strong in the first half of 2012, the bank said, but going forward the effects of the stronger SEK and weak demand in the euro area will “dampen exports”.

Along with a faster than expected appreciation of the krona, there has also been high productivity in the economy, which together suggest inflation will be lower in coming months. The bank is wary of inflation becoming too low. The bank’s new forecast for CPI inflation in 2013 is just 1.3%, down from 1.7% forecast in July this year.

Both deputy governors Lars Svensson and Karolina Ekholm argues for a repo rate cut to 1%.

 

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