Sweden raises rate to 1.25%

Sweden’s central bank raised its benchmark repo rate for a fourth time since July and repeated a forecast for more increases as policy makers try to steer the European Union’s fastest recovery and curb household borrowing.

The Stockholm-based Riksbank raised the seven-day repo rate a quarter of a percentage point to 1.25 per cent, it said today on its website. The decision was expected by 17 of 22 economists surveyed by Bloomberg. Five predicted no change.

“The Swedish economy is growing at a record rate,” the bank said in the statement. “The international recovery is continuing, although concern over public finances in Europe has increased.”

Sweden’s gross domestic product surged an annual 6.9 per cent last quarter, the fastest pace in at least six years. At the same time, credit growth has hovered around 9 per cent all year. Governor Stefan Ingves said he “personally” tracks household indebtedness when deciding rates, in a November 11 speech. The bank said today higher rates are needed to slow borrowing growth and stem the risk of imbalances.

“The hike was a step in the right direction,” said Stefan Mellin, a senior analyst at Danske Bank in Stockholm, in a phone interview. “We do expect hikes at every central bank meeting through the first half of next year.”

GDP forecast raised
The Riksbank raised its forecast for economic growth this year to 5.5 per cent from 4.8 per cent previously. Output will expand 4.4 per cent in 2011, versus its earlier forecast for 3.8 per cent, the bank estimates. The bank said it left its rate path unchanged, though it now expects the repo rate to average 1.4 per cent next quarter, versus an earlier forecast for 1.3 per cent.

“One could have expected a slightly bigger increase in the rate path, but the direction was justified given the very strong data we have seen in Sweden recently,” Mellin said.