Political Economy



Swedish central bank cuts rates - Repo rate cut by 0.25 percentage points to 0.75 per cent

Tuesday, 17 December 2013
Swedish central bank, the Riksbank cut its repo rate by 0.25 percentage points. That is the repo rate is cut by 0.25 percentage points to 0.75 per cent as the Riksbank Governor, Stefan Ingves came under the pressure to stem the persistently low inflation figures.

The Riksbank writes that economic activity is developing largely as the Riksbank had forecast earlier. However, inflation has been unexpectedly low and, despite the recovery, inflationary pressures over the coming year are expected to be much lower than in the most recent forecast in October.swedish kr

This has thus led to the first rate cut in a year, after five decisions to stand against critics and keep the interest rate unchanged.
To stimulate some spending and push inflationary condition up somewhat, the bank says it aim for cutting the rates is to contribute to inflation rising towards 2 per cent, and to make a downward adjustment in the repo-rate path for the entire forecast period. Slow increases in the repo rate are not expected to begin until the start of 2015. The risks linked to high household indebtedness remain, but the low inflation rate justifies cutting the repo rate, according to the Executive Board of the bank.

Most analysts had expected a decrease, especially after the autumn statement on surprisingly low inflation. Lower interest rates provide the economy with stimulus and expected to put upward pressure on inflation which is currently the lowest, 0.1 percent annual rate.
Those critics who long advocated a rate cut had a field day in the last week's economic statistics, which showed that the Riksbank significantly overestimated the inflation pressure in both October as November.

The Riksbank writes that Inflation has recently been unexpectedly low, with weak developments in prices of goods and services. At the same time, domestic cost pressures have been higher than inflation. This indicates that companies have had difficulty in passing on their higher costs through higher prices, which in turn may be due to weak demand. Compared with the most recent assessment in October, inflation is now expected to be much lower over the coming year.
By Scancomark.com Team

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