Repo rate left unchanged in Sweden

Despite data pointing to strong economic growth and inflation near its 2% target, Sweden's central bank has left its key repo rate unchanged at -0.25% following the latest meeting of its Executive Board.

This decision has also come with a warning that despite the benign conditions, the bank has had to step back from its forecast of rising rates set out in February, because of concerns that inflation will weaken both in Sweden and internationally through 2019.

Swedish economic growth was "unexpectedly rapid" in the last quarter of 2018, the bank aknowledges, including a high rate of employment and good economic prospects forecast.

But, it said that "unexpectedly low inflation both in Sweden and abroad, low interest rates abroad and uncertainty over global developments emphasise that there is a need to proceed with caution in monetary policy....The repo rate is expected to be raised again towards the end of the year or at the beginning of next year. Increases in the repo rate thereafter are expected to occur at a somewhat slower pace, compared with the assessment in February."

Another particularly Swedish factor is the high level of household debt. The bank has warned of this in the past, but it said this is constraining its ability to raise rates because of related household sensitivity to "changes in economic conditions". And it once again called on those responsible for fiscal and housing policy to consider their objectives - housing was one of the ares of significant difference between political parties taking part in the country's last general election, which delivered a coalition government that proved very hard to put together.

"In order to reduce the risks linked to household indebtedness and address the structural problems on the Swedish housing market, measures within housing and tax policy and an appropriate macroprudential policy are required," the bank stated

Source: Sveriges Riksbank