–Sees Repo Rate At 1.1% By 1Q 2011, 2.8% By 1Q 2012
–Adds more forecasts, details

BRUSSELS (MNI) – Sweden’s central bank Tuesday left its key policy
rate on hold at 0.25%, along with its repo rate forecast, but it revised
down its forecasts for growth and inflation this year.

“The repo rate needs to remain at a low level to support production
and employment and to attain the inflation target,” the Riksbank said in
a statement on its web site.

“Increases in the repo rate towards a more normal level will begin
in the summer or early autumn. The forecast for the repo rate is
therefore the same as in February,” it said.

The repo rate path, which the central bank left unchanged –
foresees the key repo rate at 0.25% in 2Q this year, before rising to
1.1% by 1Q 2011, to 2.8% by 1Q 2012 and to 4.0% by 1Q 2013.

“The financial markets are more stable now and the recovery in the
economy is continuing,” the Riksbank said. “Another element in the
normalisation of monetary policy is that the three fixed-interest rate
loans granted in 2009 will mature,” it said.

The Riksbank granted the fixed rate loans to help alleviate some of
the liquidity pressures Sweden’s banks were facing in the financial
crisis.

Economists at SEK in Stockholm said the Riksbank was taking into
consideration that the maturation of these loans would have a tightening
effect and therefore the probability of a rate hike in both July and
September had diminished.

In its updated forecasts, the Riksbank said the 2010 growth and
inflation rates would be lower than previously expected. It revised its
GDP forecast down to +2.2% from +2.5% in February. For the annual
inflation rate this year, it forecast +1.1%, a downward revision from
the 1.6% rate it had predicted in February’s report.

But the bank was more bullish for 2011, revising up its GDP
forecast to 3.7% from 3.4%. It left 2012’s forecast unchanged at 3.1%.

The rate of inflation in 2011 will be 2.1%, the central bank
predicted, down from February’s 2.9%. In 2012 it will be 2.9%, down from
3.1%, the Riksbank projected.

The repo rate will average 0.4% this year, 1.8% next year and 3.3%
in 2012, the Riksbank said, leaving February’s forecasts unchanged.

Deputy Governor Lars Svensson wanted this year’s rate path to be
lower, the Riksbank’s statement said. He advocated a repo rate of 0.25%
until the end of 2010 and then a return to the repo rate path in the
main scenario. This path, while lower than the one decided by the board,
was not as low as Svensson’s previous call.

The Riksbank said Svensson thought “such a repo rate path results
in about the same effects as the lower repo rate path that he has
previously advocated, that is, a better outcome for both resource
utilization and inflation, with both higher resource utilization
and…inflation closer to the target.”

Last time, Svensson registered an objection to the actual rate
decision, arguing that it should have been cut to zero. This time his
dissenting opinion only concerned the rate path.

The Riksbank’s governor, Stefan Ingves, couldn’t attend the
monetary policy meeting because his travel plans were interrupted by the
volcanic eruption in Iceland, which has shut many airports across
Europe.

The Governor’s views on Sweden’s economic situation will be
published on May 3, along with the minutes of Tuesday’s meeting, the
Riksbank said.

–Brussels bureau: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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