Sweden’s central bank kept the benchmark interest rate unchanged and said it will stick to plans to leave the rate at a record low until autumn next year to support the economic recovery and reach its inflation target.
The seven-day repo rate was left at 0.25 percent, the Stockholm-based Riksbank, the world’s oldest central bank, said on its Web site today. The decision was expected by all 15 economists surveyed by Bloomberg.
“The recovery in the economy is continuing and inflationary pressure will be low in the coming period,” the Riksbank said in its statement. Today’s decision was necessary “to attain the inflation target of 2 percent and to support the economic recovery. The recovery is from a low level and there will be ample spare capacity over the coming years.”
The largest Nordic economy’s contraction this year will be the severest since World War II, Finance Minister Anders Borg said last month. The export-reliant nation’s slump has been deeper than in neighboring Denmark and Norway after Swedish manufacturers, including the world’s biggest maker of ball bearings SKF AB and truck maker Volvo AB, cut thousands of jobs to adjust to smaller markets. Exports make up half of Sweden’s $480 billion economy.
‘Earlier’
“We still believe that the Riksbank will hike earlier than they forecast since the labor market will stabilize earlier and develop better than they predict,” said Annika Winsth, chief economist at Nordea Bank AB in Stockholm. Nordea forecasts a rate increase to 0.75 percent in April.
The krona was up 0.3 percent against the euro, after earlier having appreciated 0.5 percent, at 10.4310 at 10:19 a.m. in Stockholm. Against the dollar, the krona was up 0.4 percent at 7.1989.
The economy will shrink 4.5 percent this year and grow 2.7 percent next year, the bank forecast today. That compares with an earlier forecast of a 4.6 percent contraction in 2009 and 2.5 percent growth next year.
The central bank also revised its unemployment forecast, saying the rate will peak at 10.1 percent next year, compared with a previous estimate of 10.3 percent, and fall to 10 percent in 2011.
Unemployment
Sales abroad slumped for a 12th consecutive month in October, forcing companies to cut more jobs and threatening to send unemployment higher than the 8.1 percent rate recorded in October, not adjusting for seasonal swings. Ericsson AB, the world’s largest maker of mobile-phone networks, last week said it must continue cutting jobs and costs, affecting 946 people.
“We’re facing rising unemployment,” Borg said on Dec instant payday loans. 4. His ministry predicts the jobless rate will peak at 10.7 percent in 2010 and the economy will shrink 4.9 percent this year.
Industrial production fell for a third month in October, with the decline deepening to 2.7 percent from a 0.5 percent fall in September, Statistics Sweden data show. Industrial output sank an annual 16.1 percent in October and hasn’t grown for 15 months, according to the office.
“The Swedish economy is split in two, where industry is performing very poorly while other parts are doing better,” Winsth said. “The Riksbank focuses a lot on industry and the problems we’re experiencing there.”
Inflation Outlook
The Riksbank today said prices will fall 0.3 percent this year compared with an earlier estimate of a 0.4 percent drop. It cut its inflation expectations to 0.8 percent from 0.9 percent next year and said prices will rise 3 percent in 2011.
The recession has undermined price pressure, with Sweden posting eight months of deflation through November, the longest period of price declines since 1980, when records start. Consumer prices fell an annual 0.7 percent last month, compared with the Riksbank’s 2 percent price growth target.
Prime Minister Fredrik Reinfeldt’s government, which is preparing for an election in September, will spend 32 billion kronor ($4.5 billion) in 2010, or about 1 percent of gross domestic product, on tax cuts and welfare to support demand. His administration came to power in 2006 promising to create jobs by reducing taxes and unemployment benefits. The government trails the opposition by 7.5 percentage points, according to an opinion poll published this month by Statistics Sweden.
Some indicators have pointed to economic improvement. Sweden emerged from recession in the second quarter and expanded 0.2 percent in the three months ended September. Stimulus measures have helped send consumer confidence higher, with the index rising to 11.4 in November from 7.5 in October, marking a fourth consecutive month of positive readings.
“The economic ground should be sufficiently solid for the Riksbank to start hiking the repo rate by the end of summer next year,” Danske Bank said in a report yesterday.
Other central banks are also exercising caution. Oslo-based Norges Bank will probably leave its benchmark rate on hold today after raising the rate a quarter point on Oct. 28 to 1.5 percent as policy makers adjust their stance to lower oil investment and the impact of a strong krone on exports.
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