Sweden’s economy has developed “largely in line” with forecasts and its banks have “strong” finances and good access to funding, Riksbank Deputy Governor Svante Oeberg said.
“One should be cautious in interpreting fresh events when one is shaping economic policy,” Oeberg said today in a speech in Umeaa, Sweden, published on the central bank’s website. “Our repo rate decisions are aimed at the future. Although uncertainty has increased, and economic activity abroad so far has been slightly weaker, the Swedish economy has developed largely in line with the outline we sketched in July. Moreover, the repo rate is still low.”
The comments suggest not all of the bank’s six policy makers will abandon a plan to raise interest rates this year. The bank forecast last month that the rate would increase to 2.5 percent be the end of 2011 and average more than 3 percent in the fourth quarter next year following seven increases over the past year from a record-low 0.25 percent. The bank will announce its next rate decision on Sept. 7. Oeberg has supported all of the bank’s rate increases and forecasts.
A Bloomberg survey published today shows analysts expect the bank to scrap its tightening plans as the export-reliant Nordic economy may suffer from falling trade demand amid Europe’s debt crisis and a slowing U.S. recovery. The bank won’t raise its benchmark lending rate next month from today’s 2 percent and will only lift the rate twice more by the end of next year, according to the median estimate in the survey.
“The Riksbank recognizes that the economic environment has deteriorated abroad, but the impact on Sweden is still uncertain,” said Olle Holmgren, an economist at SEB AB in Stockholm. “The Riksbank has probably not decided what to do with the repo rate at the September meeting. Should financial markets calm down, a rate hike is still possible in September.”